All Forum Posts by: Nathan Zierer

Investment Info:

Large multi-family (5+ units) buy & hold investment.

Purchase price: $380,000
Cash invested: $276,000

Contributors:
Sarah Zierer

This is our break into “large” commercial real estate with 8 units, 4 One Bed & 4 Two Bed units. The building was not being managed well and had decades of deferred maintenance. Thankfully though, the bones were in good shape and are making the renovations relatively simple.

What made you interested in investing in this type of deal?

We were wanting to break into the commercial multi-family space and this is in an up and coming neighborhood.

How did you find this deal and how did you negotiate it?

We found the deal via our realtor sending it to us, although it was on the MLS.

How did you finance this deal?

Conventional financing of the purchasing with an 80% LTV through a local lender (referred by @Megan Greathouse, thanks!). The renovations are being self-funded in cash.

How did you add value to the deal?

So far, we are sticking with our original plan to gut the bathrooms down to studs and rebuild, new pre-hung doors, light fixtures, flooring, and paint throughout. We started with 2 units in phase 1, phase 2 will be 4 units, and phase 3 will be the remaining 2 units and common spaces. We would like to put coin operated laundry in the basement once all the work is completed as well.

What was the outcome?

Current 1 beds rent for $500 and 2 beds rent for $600. After renovations, conservatively, 1 bed units should rent for $750 and 2 beds for $900 per month. Projections show $1,500/mo cashflow and infinite ROI as we will pull a little more money out than our total investment. There will be updates to this as work continues…

Lessons learned? Challenges?

TBD

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Chris Lance - Commercial Realtor
Matt Fagin - Paramount Bank

Investment Info:

Small multi-family (2-4 units) buy & hold investment.

Purchase price: $160,000
Cash invested: $130,000

Contributors:
Sarah Zierer

This duplex was our 1st try of the BRRRR method. During the 1st walk through, we made notes to gut the bathrooms, clean & paint the rest of each unit & leave all else alone. Once we closed & started demo on the bathrooms though, it quickly became apparent that we were going to have to do the kitchens as well (as wood rot & some mold had started spreading there too). As we were clearing out the "finished" basement, drywall hid a structural crack around the entire foundation.

What made you interested in investing in this type of deal?

The property was under valued and in a prime location. We wanted to try our hand at the capital gains potential with a BRRRR.

How did you find this deal and how did you negotiate it?

We found it on the MLS, toured it within 12 hours of hitting the market, and made an offer a few hours after touring. Closing happened quickly because of it being a cash offer (though we intended to finance it).

How did you finance this deal?

Our bank fell through at the last minute, and we had to close in cash. We used a HELOC on our personal property to cover the difference.

How did you add value to the deal?

We tore bathrooms/kitchens down to studs & rebuilt with all-new plumbing, electrical & updated layouts, including dishwashers. A structural engineer inspected the foundation crack & determined it only needed epoxy filling. Additionally, we installed a new sewer lateral, water heaters, windows, light fixtures & outlets, roof (including facia, soffit, & gutters), blow in attic insulation, patio, sidewalks, parking pad & privacy fence. The furnace/ACs we hope to get a couple years out of yet.

What was the outcome?

Although it isn't the highest ROI, the value of the house is about 15% more than what we have in it & our cap expense going forward will also be minimal. We've refinanced & pulled out 2/3 of our money, giving us 9% ROI. This is one of our top producers, hence the cliché real estate term "Location, Location, Location". The property runs smoothly, & we are considering converting one of the units to a mid-term rental since it's located less than half a mile from the two largest regional hospitals.

Lessons learned? Challenges?

Nothing better can be said than truly vetting your general contractor - we had many problems with them through the project, and he ultimately walked off the job mid construction.

Investment Info:

Small multi-family (2-4 units) buy & hold investment.

Purchase price: $160,000
Cash invested: $130,000

Contributors:
Sarah Zierer

The duplex on Kentucky Avenue was our first step into the BRRRR method of real estate investing. During the first walk through, we made mental notes that we would gut the bathrooms, clean and paint the rest of each unit and leave everything else alone. Once we closed and started demo on the bathrooms though, it quickly became apparent that we were going to have to do the kitchens as well (as wood rot and some mold had started spreading there too). Also, as we were clearing out the finished basement, using "finished" loosely, the wall coverings hid a structural crack around the entire foundation. We ultimately tore the bathrooms and kitchens down to studs and rebuilt them back with all-new plumbing, electrical, and updated layouts (including new dishwashers). We had the foundation crack reviewed by structural engineer and determined it only needed epoxy filling. Additionally, we installed a new sewer lateral, water heaters, windows, light fixtures and outlets, roof (including facia, soffit, and gutters), blow in attic insulation, patio, sidewalks, parking pad and privacy fence. The only things we did not touch were the furnaces and condenser units in hopes that we can get a couple years out of them until replacement is needed. Not the highest ROI, but the value of the house is about 15% more than what we have in it, and our cap expense going forward will also be minimal. We have refinanced and pulled out 2/3 of our money, giving us an effective 9% ROI.

What made you interested in investing in this type of deal?

The property was under valued and in a prime location. We wanted to try our hand at the capital gains potential with a BRRRR.

How did you find this deal and how did you negotiate it?

We found it on the MLS, toured it within 12 hours of hitting the market, and made an offer a few hours after touring. Closing happened quickly because of it being a cash offer (though we intended to finance it).

How did you finance this deal?

Our bank fell through at the last minute, and we had to close in cash. We used a HELOC on our personal property to cover the difference.

How did you add value to the deal?

See the description of the property above but basically through a lot of capital improvements.

What was the outcome?

This is one of our top producers, hence the cliché real estate term "Location, Location, Location". The property runs smoothly, and we are considering converting one of the units to a mid-term rental since it is located less than half a mile from the two largest regional hospitals.

Lessons learned? Challenges?

Nothing better can be said than truly vetting your general contractor - we had many problems with them through the project, and he ultimately walked off the job mid construction.

The buyer will pay the RE taxes on the property typically.  I guess you could get a concessions for them in the first year or worked out with the buyer in the price or cash back at closing; though because its seller financed I doubt they would do that.  Because you will want it recorded that the transaction has occurred there really isn't any way around this. I guess you could get something like a quit claim deed, but that would be bad on the sellers part because he won't have much for insurance that payment would actually happen - and I don't think you could do that at a title company because they have ethics regulations about that (everyone would just quit claim deed their house over for $10, and you would by a paper clip for $200,000 and then there would be no basis for taxation)

Besides the money won't really be made in the 6 months to a year by; the time you recoup your buying expenses, any repairs or upgrades you need to do the property or just rebuilding reserves. But more over, if the property taxes are going up are going to kill your deal, how are you going to deal with inflation of services such as water, sewer, trash or general handyman/materials for the project? Our water/sewer bills are all expected to rise about 8%-11% this year.

Thank you everyone commented here and through DM's. We have been hooked up with a commercial broker through our property manager and are getting some good leads. Once our final appraisal number comes through on our current 2 family BRRRR, we have 2-3 properties we are looking at putting in LOIs on. One of these properties is an off market 16 unit, possibly BRRRR situation. We'll update this thread as we get more concrete information.

Thank you again.

@James Wenzel I actually was an architect that worked for a developer for 8 years, but now I am working for a new developer directly in the finance side and project management. I would think my work history and knowledge will make up for any hesitation a lender might have, more of the problem I have is getting credible contacts on the CRE side. Most everyone has brushed us off because of our age or would only feed the table scraps stuff that wasn't worth it (though I did run everything I was sent just for the practice and understanding our market)

@Benjamin Aaker your spot on for what we are looking for. Something in the 5-15 unit range that could have some value add and if it were larger than we would be looking at more turn key listings. We certainly are not afraid of the ugly duckling after our last project.

@Evan Polaski thank you for the insight. I have noticed when looking in the rust belt more feasible properties do get listed there (Indiana, Ohio, Pennsylvania, Michigan, south Chicago) but as I move out of those markets the ratio of multi family shifts away to more commercial ventures (gas station, office buildings, strip malls). Not to say there are none listed, just a lot less proportionately. In particular, St. Louis is older than most rust belt cities and has a plethora of small/medium multis, but for as many as there are either no one is selling or they never make it to those 3rd party sites.

I guess my main thing is to try to get in front of brokers and prove I can close so they will take us seriously (worked with one broker and all I got was scrap junk, stuff you would have to pay me to take - it left a bad taste in my mouth after 3-4 months working with them)

@William Costello I have thought about syndication but I really do enjoy the process of search/offering/improving and directly reaping the benefits. Maybe when we are at a more independent financial position we would look at diversifying into syndicated property but at the moment I love the hunt and full process. I also want to prove to myself first that we can do this before we start bringing in outside money, that way we have a proven track record. I feel uneasy about being LP as well where I hear people say they own 200-500 unit complex’s but are really just limited partners with no control over the success of the deal, that seams like a further out there risk especially in an unstable market.

Sorry long rant, but we have been involved in our local REI meetups but they weren't really into the larger than 4 family world.

We are looking to break out of the small multifamily market (2-4) and into the large/commercial multifamily world. We are coming off of a great BRRRR project and will have a large sum of money to be looking at redeploying. If anyone knows of a deal or has a contact for a commercial broker that would be amazing. We are looking at property sizes between 5-25 units ideally, as we are wanting to make this deal owned by us and no outside investors. Once we have our feet under us and have learned more of the ropes then we would be looking to bring on investors. We have been doing the casual looking on sites like LoopNet and Crexi, but from what I understand those are the places where deals are put when the brokers go-to people already turned down the deal. Once in great while, we have seen good ones, but they do seem rarities. We would also like to stick with St. Louis at least for our first one as we have a great team set up there now.

Any help would be greatly appreciated and we look forward to talking with you all.