Diligence pays off: Closing a 224 unit apartment

Recently we closed on a 224 unit apartment in Memphis, TN. The apartment community is a strong B class value add opportunity. It comes with 89% occupancy and we will be putting in around $2mm worth of interior repairs, adding a clubhouse, improving and adding amenities as well as improving the exterior curb appeal. With that we will be able to raise rents by about $100/unit and bring the occupancy closer to the 95% range that the neighboring properties are achieving. The best thing about doing a value add like this in my eyes is the positive impact it will have on the community, as well as the impact on our return on investment. When we are finished this will be a clean and updated property with sound management and quality residents. By employing sound management and renovation strategies we will be able to make this a win for our residents, property management/maintenance staff, the neighborhood and our investors.

The unique part of the deal for me was partnering with others to get the deal done. This deal was actually brought to me by a fellow investor and friend that I met a while back. We formed a partnership between us and 2 others that checked all the boxes. The best part is that we all have a lot of experience and come with our own unique strengths, as well as overall knowledge that will help make this a great investment.

Partnering on this deal made a lot of sense. This property was located in Memphis, TN, which is a new market for me. This is a market that I like and was interested in purchasing properties, but I did not have the detailed knowledge of the neighborhoods necessary. When going into a new market it is extremely important to gain detailed knowledge of the city and that includes on the ground experience, as well as relationship building with key team members, such as property management, brokers, contractors and lenders. I was knowledgeable about the market and the positive direction that Memphis is heading, but my experience with boots on the ground was limited to one previous 2 day trip to the market. Having partners that already owned a combined 900 units in the market gave me a major advantage and shortened the learning curve. Sound relationships with property management, contractors, brokers, lenders, etc was already built. It was easy to get comfortable with the market quickly as I toured the property, neighborhood and comps.

So what have I taken from this that may help you with your business?

• 1.Be diligent: I wrote 47 LOI’s between my last purchase and this purchase. That means my team underwrote around 150-200 apartments during that time. That’s a lot of frustration and head scratching, as I see others paying millions more than my offer on a property! There was times that I thought, maybe the market had gotten out of reach for my underwriting and that I should just sit it out for a while, but I pressed on and will continue to do so.
• 2.Be open to opportunities: Always open yourself up to potential partnerships that make sense. Do this by building relationships and getting yourself out there as a known entity. If you have an open mind and an abundance mindset life has a funny way of rewarding you. Of course make sure any partnerships will align with your goals, strategies and most importantly ethics and values. Getting into the wrong partnerships just to do a deal, is just as bad as overpaying for a deal. A bad partnership with the wrong people quickly paints you into the same negative reputation as your partners. That’s never worth the potential profits you could make.
• 3.Build relationships: Relationships are what got this deal done. The property management company brought the deal to us, so without that relationship, I wouldn’t be writing this. The lender was experienced in the market and had worked with some of the partners before. This was extremely helpful. Having a relationship with all of the partners made the decision for all of us to do business with each other easy and simple. Lastly relationships with our investors allowed us to raise money for the deal quickly to ensure a timely closing.
• 4.Communicate with your investors throughout. Most sponsors will tell you to expect 20-30% of your commitments to back out of the deal. On my past few raises, I have retained over 95% of my investors. On this raise we had 3.5% of our dollar commitments not fund in the end. We did this by sending out emails throughout and by calling/emailing investors throughout the process to ensure they are understanding the process. I also, try to make it clear that a commitment is serious. They still have the right to back out, before they sign the documents and wire the funds, but I don’t want that to be a regular thing.

I am excited for this partnership with all of my partners – both active and passive!

To your success!

Todd Dexheimer