All Forum Posts by: Kyle Mack

1. I had a target cash-flow number, which had to reached through the proper purchase price.

2. I did not consider the property the right type of long-term investment. I wanted to focus my attention on larger properties where I can delegate the management instead of personally managing. After I realized that 3rd party PM didn't quite make sense, I had to make a decision on whether to spend time personally managing or to sell the property.

Over the course of ownership (19 months), I paid down the principal by about $15,000. Additionally, during this time, I was able to pay down the business LOC to a certain degree. Therefore, the end result was a profit of roughly $34,000 after paying off the LOC and closing costs.

Hey Biggerpockets! I wanted to share a recent deal and how the numbers worked out from start to finish on an 18 unit apartment building.

Towards the end of 2015, I was on the hunt for a multifamily building. At the time, I was only earning ~$30,000/yr in an "entry-level" commercial real estate research job (first job out of college). At the time, I thought my only option would be to purchase an apartment building on flexible terms (land contract).

My eyes set on an apartment building that had been on the market 150+ days. After doing some research, I realized that the seller had owned the property since the mid 1970s. The property consists of 18 units (two 5 unit buildings & two 4 unit buildings) - 4 buildings on 2 taxkeys. The property sits in West Allis, WI, a suburb of Milwaukee, a predominantly blue-collar area (B-/C+ neighborhood).

I approached the listing agent with the idea of a land contract. Turns out, the seller was open to creative ideas. In his 60s, he had managed the property for decades and there was no mortgage on the property. The asking price was $689,900. After some discussion, we were able to get the property under contract for $625,000. 

Listing Broker Pro-forma Analysis:

Effective Gross Income: $115,980

Gross Operating Income: $111,661 (5% vacancy, laundry & parking income added)

Expenses:

2014 Taxes: $16,005

Gas/Electric: $23,000

Water/Sewer: $5,130

Insurance: $2,800

Property Management: $4,800

Repairs and Maintenance: $6,725

Trash Removal: $2,200

Total Expenses: $60,665

Net Operating Income (NOI): $50,996 (8.16% CAP)

With the seller, we had negotiated on the price. Since its a land contract, we needed to further discuss the rest of the terms, which ended up being 30 year amortization, 5 year term, and 5% interest rate. The seller would NOT financed the entire purchase and required $35,000 down. I ended up using a business line of credit for the down-payment.

Here's what I learned from the purchase:

1. Verify every single pro-forma number. While the listing broker means well, not every number in the pro-forma proved to be accurate. For example, the insurance number was based on the seller's old policy, which was grandfathered in over the years. The insurance ended up costing my $4,300/year.

2. In the future, it would be smart to call the municipality and check if there are any code deficiencies. Luckily, there were none! In future larger purchases, I will make sure that I check this.

The property was under 3rd party property management. They did an "okay" job. With property management, it is important to "stay on top of things", and not assume that everything is going right. I found out that there were multiple tenants without current leases. Additionally, it is difficult for property management to care for a property as much as an owner will. I concluded that money was being spent on the property that didn't necessarily NEED to be spent. I ended up firing the property management and self-managing the property. 

Considering how HOT the market is, I later decided that now would be the correct time to sell the property. Also being a commercial real estate broker, I decided to market the property myself and save a commission. I marketed the property with the following numbers:

Asking Price: $659,000

2016 Gross Operating Income: $111,607 (one unit is vacant and requiring renovation & most other units had a $10-25 increase in rent since purchase)

Expenses:

2014 Taxes: $16,264

Gas/Electric: $15,563 (with tweaking the boilers, this number dropped $7,500 since the purchase)

Water/Sewer: $4,333

Insurance: $4,300

Repairs and Maintenance: $9,032

Trash Removal: $1,450

Total Expenses: $56,007

Net Operating Income (NOI): $55,600 (8.44% CAP)

There was significant interest in the property, and I could have pushed the price higher. However, I considered the price to be fair and simply wanted to get out of the contract. Within a short time, the property was under contract "as-is". The due diligence period lasted just over 2 months. This transaction was somewhat complicated in that it was technically an assumption of the land contract to the new buyer. In a way, there were two sellers who needed to execute the "offer to purchase" contract: the land contract holder (original seller) and myself. 

At last, the property sold on August 28, 2017. I was able to walk away with roughly $43,000, not counting the cash-flow earned since the acquisition. Currently, I am looking forward to the future. I am seeking new opportunities in multi-family and raising capital for another purchase. This deal was a fantastic learning experience and I think I can leverage this experience to invest smarter in the future. PM me with any other questions!

 The property is on Milwaukee's north side, south of Lisbon Ave on 56th street.

 1. The duplex is 2230 SF, so on $5700, I guess it ended up being $2.56/SF, but this was a very light rehab and consisted mostly of cosmetic concerns.

2. Yes, there is an equity split with my partner - that's what's in it for him.

3. The refinance lender was a local credit union.

 John, just my two cents, but I own a duplex in Capitol Heights (I think the neighborhood is more commonly known as Midtown). I think it is a solid neighborhood (I wouldn't venture east of the "Fond du Lac" border). Especially on the more common, thru streets (Capitol, Congress, 60th, 68th, etc), there are many homeowners and people who take care of their homes/neighborhood. The area also benefits from being centrally located. For me to buy here, I would definitely need to be getting a solid 2% rule property. For example, my duplex is on 68th and a block north of capitol. I purchased for $70k and put $7k into the property. Each unit will rent for $850.

 The down-payment was 10% of the total project cost, plus 5 points + $1900 processing fee. The cost is steep, but is a great tool that can be leveraged to do more deals when applied properly. I would contact Sarah Floyd with Milwaukee Hard Money with any other questions. The refinance lender was Educators CU.

 Let me know if you have any other questions about the Milwaukee market - I would be happy to be a resource for you.

 Yes, to save money, I thought about keeping the carpets, but they were visibly worn and past their useful life. After lifting one corner of the carpet, I realized that there were beautiful hardwoods underneath, which is obviously a selling point. No brainer to remove the carpets.

Hey Biggerpockets! I wanted to share my BRRR project and how the numbers worked out.

At the beginning of the year, based on a hotter multi-family market, I switched gears to focus solely on foreclosed duplexes. Starting on the MLS, I looked at duplexes that needed under $10,000 in rehab work in B-/C+ neighborhoods.

As a full-time occupation, I am a commercial real estate professional. Although I am licensed and have MLS credentials, I have found it makes the most sense to have a trusted broker (@Michael Henry), to walk the properties with me, provide his opinion/feedback, and write my offers for me. After 2-3 showings per week for about 2 months, I found a 3/2 BR upper/lower duplex that showed promise.

Mike has completed and advised on many rehab/rental projects and his expertise was helpful in making a decision. Primarily, the rehab work was cosmetic, but including finishing off a bathroom. The rehab cost was estimated at $5,700. I put in an offer of $55,000, which was slightly over asking price, due to multiple offers. I estimated the ARV to be right around $100,000 (60.7% LTV).

Concerning financing, I had partnered up with another partner, who provided the down-payment. In order to remain flexible, I approached a local hard money lender, who funded 65% of the ARV. With this structure, I was able to purchase the building for NO MONEY DOWN.

I closed on the property on 3/27/17, and the rehab timeframe was roughly one month. Also, during this time, I found a local credit union who could refinance me out of the hard money for up to 80% LTV with NO SEASONING PERIOD for the full appraisal value.

Once the rehab work was completed, we immediately began to show the duplex to potential tenants. The duplex was marketed for $775 for the 2 br and $875 for the 3 br ($1650/mo total). With maintenance reserves, CAPEX, insurance, taxes, utilities, and a vacancy factor, the cash-flow is $425/month.

For me, the cool thing was be able to refinance and walk away with cash for a deal that I put absolutely no money into! The property appraised for $101,000 and I was able to refinance at 80% ($80,800). Therefore, at closing, after paying back my "down-payment" partner and making a few hard money payments and fees, I was able to walk away with a check for $10,600.

The even better news is that I have 6 more of these BRRR projects in the pipeline (2 in the rehab phase, 1 closes tomorrow, and 3 are pending to close). More posts to come!!