Investment Info:
Large multi-family (5+ units) buy & hold investment in Phoenix.
Purchase price: $762,500
Cash invested: $236,500
14-unit of 1BR & Studios that I purchased after another investor had fully renovated it and leased all units. The property is about 1/2 mile from downtown Phoenix and 15 mins from Sky Harbor Airport. All units have been rented to low-income tenants receiving assistance through voucher programs, and I plan to stick with low-income tenants to help alleviate the low-income housing stock in Phoenix.
The seller took over management after purchase and managed the property fairly well for the first few years, but then unfortunately he got sick and by the time I got another property manager in there we had lost a couple of tenants and the place was having security problems and vandalism. Over the next two property managers we lost over half of the tenants, had numerous squatters in vacant units, and significant gang and other illicit activity. During this past year I went from a smoothly running property to over 200 calls for service in one year by local police, a homicide, an exterior fire, and an interior fire set by a squatter. I am now on my 4th property manager, which is a company that specializes in low-income tenants and renovations, and I have high hopes for getting the property running smoothly again soon.
In April 2021 I got new fencing up to better control access, and in May I'm just finishing up controlled access for the courtyard, which allows access to all the units, and security cameras around the building, and for now we have a security guard in place to eliminate non-resident traffic and vandalism.
WIth only 4 of the 14 units currently occupied, over the next few months I am planning to put in $100,000 to repair and renovate the units. Along with the WiFi for the security cameras I am including a managed WiFi for the tenants many of whom can't afford home WiFi. As all utilities are included I am also planning to look into covering the roof with solar panels in 2022 as a more sustainable option and to offset extremely high electric bills over the summer.
Update: Feb 7th, 2022
By Jan, 2022 we had all units renovated and 14 of 14 units rented again. Before and after pics posted below. Just got an offer recently for nearly 3 times what I bought the property for 5.5 years ago, so considering selling. Happy to finally have this property turned around!
What made you interested in investing in this type of deal?
I picked up this property after selling two long held SFRs that had quite a bit of equity. I was looking for a cash cow that I could hold onto and get decent cash flow from to supplement my retirement income after retiring from the Air Force a few years earlier.
How did you find this deal and how did you negotiate it?
I had been searching all over the country, in cities I had lived previously, for a MF property to invest in. My sister lives in the Phoenix area, so while visiting one summer I thought let me contact a realtor and see what might be available here in AZ. Of the 6 properties the agent found that matched what I was looking for, only 2 warranted visiting, and this one had better numbers than any other property I had looked at. Offered a little below asking and we settled somewhere in between.
How did you finance this deal?
This deal was financed as a 5/1 ARM (30 yr Amort) with a portfolio lender referred to me by my agent.
How did you add value to the deal?
The property was already turnkey, so no need to do anything. A few years later, however, my manager got sick and the property began a precipitous decline. 2 more property managers later, having lost over half my tenants, suffered squatting, significant vandalism and then arson, I finally got a great property manager in able and willing to work with me to turn the property around. As of 2022 all units are occupied, the vandalism and crime have moved on, and we are cash flowing again!
What was the outcome?
I just finishing getting the place running smoothly again after multiple disastrous property management experiences. My plan was to continue to hold the property for the cash flow, but I recently got an offer for nearly 3 times what I paid for the property, so while the market is still blazing hot I'm now considering cashing out and investing in something bigger.
Lessons learned? Challenges?
Stay on top of your property manager. Even if they've done well for years, life circumstances change, and can significantly affect their performance. You would be astounded at how quickly a well run and performing property can go downhill and become the bane of your existence. Lesson 2: thoroughly vet property management before bringing them on, make sure they are up to the job you have for them, and be willing to pay well for good management.
Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?
I can't say enough about Christine Shipley, Kristi Thames, Julian Pena, Brian Eaves, Lea Long, and the rest of the team at Dunlap & Magee. I brought them on board in April 2021 to manage the property when it was at it's low point with only 6 of 14 units occupied, squatters everywhere, vandalism and crime running rampant. By January 2022 security had been restored, most damages repaired, 100% of the units were occupied, and the property was cash flowing again. Very professional and capable team!
