Multifamily Acquisition - 216 Units - Step by Step behind the scenes

Step 1 - The Property Info:

• Located the deal by calling building owners off a Costar report.
• The owner was a broker and had it listed but was not with one of the major players.
• Property consist of 216 units & Located in Oklahoma
• Purchase Price $28K/Unit - Very Attractive!
• Value-Add Project with rents under market and currently no units upgraded & was self managed.
• Ask Broker or owner several questions about vacant units, value add, current management, Capex completed, etc… The more questions the better - don't assume!
• Get all the financials (T12 & Rent Roll) & pull comps. Then move on to Step 2.

Step 2 - Underwriting:

• Take all the data from the T12, Rent Roll & Comps and plug them into underwriting
  
• We use a 2 step process. 
  • We have a high level spreadsheet that gives us a rough idea with basic info if its a deal or not
    
  • Then if the high level checks out we dive deep into the numbers and really zone in on how many unit upgrades and the rent bumps by month and not just years. We also get more detailed on the Capex. This allows us to be more confident with our offers. 

Step 3 - Pre Property Tour Questionnaire:

• Questions to Ask the Broker/Owner:
  • Interior Units:
    
    • Exactly how many Units have been renovated
    • The degree of the upgrade
    • Are all the Units that have not been renovated in the same condition or do some need more work than others?
    • A List of all Vacant Units with rating for each unit
    • Classic
    • Upgraded (List of Upgrades) – Estimated Cost of Upgrades
    • Units with Major Renovations Needed – Degree of Current Condition
• Capex:
  • A List of all completed Capex Items & cost
  • A List of all non completed Capex Items & budget
  • Any estimates from contractors to complete any of the pending renovations / capex
  • Answers to the Following Questions:
  • How many AC Units Replaced in the last 2 years
  • Chillers Replaced or major work completed in the last 2 years
  • How many Water Heaters Replaced in the last 2 years
  • Boilers Replaced or major work completed in the last 2 years
  • Any work completed to the roofs or replaced in the past 10 years?
  • Are there any active roof leaks?
  • Type of existing Flat Roof material?
  • Any work completed to the foundation?
  • Any major plumbing work completed?
  • Are the sewer lines Cast Iron or PVC?
  • Are there any known slab leaks or any other major plumbing issues present?
  • Any major electrical work completed?
  • Is the wiring aluminum or copper?
  • Are there any Federal Pacific electrical panels onsite?
  • What do you think the property needs done cosmetically and deferred maintenance?
    
• Onsite the day of Inspection:
  • Have a vacant unit for each floor plan
  • One of each unit type classic & upgraded, etc...

Step 4 - The Property Tour:

• Interior Units
  • Take lots of pics and videos
  • Make notes of what the classic units currently have for flooring, cabinets, countertops, plumbing & lighting fixtures, door & cabinet knobs, etc...
  • Make notes of the upgrades that have been done to the upgraded units.
• Landscape
  • Look for overgrown Bushes
  • Tree that need to be trimmed (No branches should be hanging over a roof)
  • Pictures of the following:
    • Curb Appeal on all sides of the property that face a street
    • Landscape around the office and amenities
    • Any overgrown bushes or Trees
    • Any dead landscape
    • Area that may need sod or mulch
• Exterior Walls
  • What is the existing material (Wood, Vinyl, Hardie, Brick, Stone)
  • What Condition Is it in?
  • Does it need to be painted?
  • Pictures of the following:
    • Each Building Needs the following pictures:
      • Picture of Building Number
      • Picture of each Elevation going around clockwise
      • Any breezeways or niches in the building elevations
• Windows
  • Condition of existing windows
  • Should We Install Solar Screens?
• Roof
  • Type of Roof
  • Condition & Age
• Parking Lot
• Walkways
• .......There is more to this but I will do a separate blog about what to look for when doing a property tour as well as due diligence. 

Step 5 - Rough Renovation Budget:

• You take all the notes and pictures from your property tour and come up with a rough budget for your Capex. 
• .......There is more to this one as well but will do a separate blog on determining this rough budget. 

Step 6 - Revise UW, Submit a Confident LOI & Then Go to Contract:

• Revise our detailed underwriting with more accurate numbers for comps & capex after our property tour.
  
• Then submit an LOI and once accepted draft a PSA
  

Step 7 - Due Diligence:

• Be Ready to Walk every unit & have a system for inputting the data.
  • Use a property management team, inspector, contractor or your own internal team.
• Be organized and efficient. A lot of pre-planning.
• Get a professional to Inspect the following and some will have cost associated with them:
  • Scope your sewer lines
  • Boiler
  • Chillers
  • Foundation & Drainage
  • Termites
  • Asphalt
  • Roofs
• You can also get a General Contractor to do all of this for you. Just make sure they come highly recommended from other investors.
• Get pricing for your deferred maintenance & upgrades from a GC

Step 8 - Funding the Deal:

• Lineup your debt
• Raise the equity needed to fund the deal
  • Build an Investment Summary
  • For a 506(b) send an email to only those contacts that fall under the 506(b) set of rules. If 506(c) go nuts with it but make sure you have something setup to verify they are accredited investors. 
  • Host a webinar for those interested
  • Make calls and meet in person when needed  
  • ....... A lot more to be said here but this blog is becoming very long so will leave for another more detailed blog about funding the deal

Step 9 - Revise Budget, Pre-Construction & Then Close!

• Revise your budget from your findings
• If something major was discovered communicate with seller before the end of your DD period and negotiate the price
• Finalize Your scope
• Hire your General Contractor
• Have a Pre-Construction Meeting
• Be Ready to start on your renovations within two weeks from closing
• Close!
• Then put your business plan to work & add value to your property and investors!

Property Financials for this Deal:

Acquisition:

• Purchase Price -- $6,170,000
• Capital Improvements -- $1,193,750
• Closing Fees & Carrying Costs -- $156,250
  • All In Cost -- $7,550,000

Stabilized Projections:

• Net Operating Income -- $737,659
• Cap Rate at Basis -- 9.8%
• Stabilized Value -- $10,540,000
• Equity Created -- $2,990,000
• New Loan Amount -- $7,910,000
• Refi Loan Proceeds -- $360,000
• Annual Cash Flow -- $213,507

Why We Liked The Deal:

✅ Purchase Price of $28K per Door

✅ Property Condition Newer Roofs, Well maintained, No Major Foundation or Plumbing Issues

✅ Property Characteristics Individual HVAC & Water Heaters, Great Unit Mix, Large Floor Plans, Great Amenities Including Pools, Gym, Sauna & Playgrounds

✅ Cash Flowing from day one

✅ Conservative Underwriting

✅ Cost Segregation