All Forum Posts by: Joseph Koury

First, I love my real estate cash flows and the opportunity they have provided for my family...but I am curious how you all feel about this. The local and federal government is tightening their grip on Real Estate across the country. There are probably local groups in your city or state huddling together to figure out how to reduce the amount of money that can be made via real estate. They all have their stories about their bad landlord or their greedy landlord and their intentions, although misguided, are thought to be good by them. I work in marketing for a 10,000 unit developer and also own a portfolio of real estate so I am exposed to renters of all kinds. My question is, can too much money be made in real estate? Does this mean that the properties aren't getting maintained well enough? Does it mean that the investors are not reinvesting their profits into more real estate for the needed demand? Does it mean that renewals are priced too high? Or, does it just mean that real estate isn't transparent enough? I know the company I work for has investors across the country that invest with them and one of them is a pension fund for over 200,000 teachers. So our success/profits are aligned with the teachers' pensions. I love the fact that and it feels as though the reciprocal nature of real estate profits are not educated or discussed enough. What are your thoughts? 

@Caleb Brown Thanks Caleb - we are happy with the project and look forward to the next! 

@Ben Steelman Thanks Ben 

Investment Info:

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

Purchase price: $420,000
Cash invested: $100,000

Contributors:
Ben Steelman

7 Condos in an 18 Unit Condo Building
Kansas City, MO
Westport Area of Kansas City
420,000 Purchase Price
Purchase Rents: $650/month
200,000 Investment($28,500/unit)
Stabilized Rents: $1250/month
10% Cap Rate
30% Cash on Cash Return

We recently refinanced into a 10-year note at 4.61% interest and currently in the process of buying more units.

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

We were originally looking to buy one condo in this building of 18, but we soon learned that the owner was interested in selling all 7 of his units. A few of the units were rented at $650/month and a few vacant with one gutted. Other non-remodeled units owned by others were renting for $800. We know the area well with the location being very close to KU Medical Center and Westport Entertainment District. We were confident we could put $15k in each condo and get $1,000/month in rent.

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

The realtor listing the project was a single-family home part-time realtor and the first showing was actually with the owner. The owner was a local brewery owner and won the lottery about 15 years ago($14,000,000). We knew he was behind on his taxes now, so something must have gone the wrong financially or he just didn't care about the property. He had them initially listed for $90,000/unit. After meeting and discussing with him his priorities, he decided to sell to us for $60,000/unit.

How did you finance this deal?

Initial Down Payment: $63k (Lines of credit)
Initial Loan: $420k
Construction Loan: $140k
LOC injected for additional remodel: $40k
Cash injected for additional expenses: $20k
Refinance after stabilization: $460k at 5.75% Int. for 5 yr., 20 yr. Amort.
Refinance 2 years later for $560k at 4.61% Int. for 10 yr., 30 r Amort.

How did you add value to the deal?

We used a cap rate of 10% and cash flows of 20% to value the deal.

What was the outcome?

After refinancing 2 years later, we have paid off our lines of credit completely(no cash used), and now still have a 10% cap rate but comps are capping at 7%, so we have an asset now worth $960,000 according to the appraised value with a $560,000 debt liability. 1.4 debt to equity ratio. Rents are $1250/month and cashflow is about $35,000/year and we have $100,000 LOC ready to use on our next project with a possible additional $100,000k we can pull out of the project.

Lessons learned? Challenges?

We are documenting all of our lessons learned at www.failintosuccess.com

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

Lead bank in Kansas City was great to work with on the initial remodeling loan. Bank of the West was great to work with on the refinance 2 years later.

Investment Info:

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

Purchase price: $420,000
Cash invested: $100,000

Contributors:
Ben Steelman

7 Condos in an 18 Unit Condo Building
Kansas City, MO
Westport Area of Kansas City
420,000 Purchase Price
Purchase Rents: $650/month
200,000 Investment($28,500/unit)
Stabilized Rents: $1250/month
10% Cap Rate
30% Cash on Cash Return

We recently refinanced into a 10-year note at 4.61% interest and currently in the process of buying more units.

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

We were originally looking to buy one condo in this building of 18, but we soon learned that the owner was interested in selling all 7 of his units. A few of the units were rented at $650/month and a few vacant with one gutted. Other non-remodeled units owned by others were renting for $800. We know the area well with the location being very close to KU Medical Center and Westport Entertainment District. We were confident we could put $15k in each condo and get $1,000/month in rent.

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

The realtor listing the project was a single-family home part-time realtor and the first showing was actually with the owner. The owner was a local brewery owner and won the lottery about 15 years ago($14,000,000). We knew he was behind on his taxes now, so something must have gone the wrong financially or he just didn't care about the property. He had them initially listed for $90,000/unit. After meeting and discussing with him his priorities, he decided to sell to us for $60,000/unit.

How did you finance this deal?

Initial Down Payment: $63k (Lines of credit on our personal properties)
Initial Loan: $420k
Construction Loan: $140k
LOC injected for additional remodel $40k - we realized we could get more rent for an additional $10,000/unit to spend - washer & dryer in-unit, nicer finishes, and upgraded bathrooms.
Cash injected for additional expenses: $20k

Refinance after stabilization: $460k at 5.75% Int. for 5 yr., 20 yr. Amort.
Refinance 2 years later for $560k at 4.61% Int. for 10 yr., 30 r Amort.

How did you add value to the deal?

We used a cap rate of 10% and cash flows of 20% to value the deal.

What was the outcome?

After refinancing 2 years later, we have paid off our lines of credit completely(no cash used), and now still have a 10% cap rate but comps are capping at 7%, so we have an asset now worth $960,000 according to the appraised value with a $560,000 debt liability. 1.4 debt to equity ratio. Rents are $1250/month and cashflow is about $35,000/year and we have $100,000 LOC ready to use on our next project with a possible additional $100,000k we can pull out of the project.

Lessons learned? Challenges?

We are documenting all of our lessons learned at www.failintosuccess.com

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

Lead bank in Kansas City was great to work with on the initial remodeling loan. Bank of the West was great to work with on the refinance 2 years later.

Hi Amy - I started buying Single Family Homes slowly over the last 10 years and recently go into some Multifamily in Kansas City. I don't regret any of it and it has lead me to have the opportunity to buy larger deals now. BUT! If I lived a 2nd life, I would try a different route first. I would take a look at the best markets in the US using some known strategies on growth. Find investors working on large apartment projects and asking how you can invest in the projects. There are opportunities everywhere for real estate. A lot of the pension funds are moving their investments to real estate from bonds due to multiple factors. The S&P 500 has averaged a 1.5% dividened, when comparing that to real estate cash on cash returns, Real Estate looks very attractive. Let me know if you want to connect further! 

Hey Mendy - I have to price shop a lot in my role and the thing I determined is that there are definite numbers and some art to the process, but overall it's just putting in the work. You can pay for the data on a website like CoStar but even the data there isn't as accurate as doing it yourself.  I use a simple spreadsheet that captures as many "comps" as possible to include many data points. Address, neighborhood, building age, building style, number of units in the building, crime rate, walk-score, pool, gym, laundry in-unit, sqft, laundry center, carpet, wood, vinyl floors, number of bedrooms, bathrooms, price, etc. That is all data you can find yourself or pay someone via Upwork to do for you. Once you have the concrete data, this is where the art comes into play. You need to categorize each building into class A+, A, A-, B+, B, etc. Once you do that, you can accurately determine where your property falls currently, and where you think it will land after you remodel it. As you get more granular in your market, you can start to price out each feature of the apartment and for example, you will know what adding a washer and dryer in-unit will bring in additional rent. For example, we found that a washer and dryer in-unit in Kansas City will bring an additional $100/month in a good area of Kansas City but only  $50/month in a different area. Hope this helps and feel free to connect. 

Her Gerardo - we are Kansas City investors with small multi-family experience. We are looking to expand to other markets as well on some larger deals. After attending a real estate conference and listening to some economists and data scientists, it seems that there are more transactions in multifamily real estate than ever before. Have you thought about expanding your search area? Cap rates are depressing due to the heavy influx of foreign money(their cap rates are even lower), but we believe that there is still opportunity in the right markets. One strategy we found interesting was to partner with an operator who already has deals working and a good marketing strategy to find deals. You can organize a fund of investors or be the sole investor and partner on the project in a passive or join partner capacity first. If you want to connect further, please reach out. 

Hey Glen - we jumped into the multifamily real estate game in Kansas City after investing single-family and working in the apartment space. We have been working with a mentor to analyze deals and happy to discuss strategies and resources we use. Let's connect!

Great stuff - would love to dive into this a little deeper with you.