All Forum Posts by: Swat Khan

Does anyone have an all section 8 on their apartment complex? I'm getting a good deal on a discounted apartment complex near downtown in a C area of a 200,000 Texas city...I spoke with HUD section 8 in the city and they said they have a long waiting list and could fill up the entire building (50 unit). I'm contemplating if this might be the way to go. They also said the property may qualify for a HUD program that covers 50% of the rents? Anyone have experience with 100% section apartment complexes?

@Kellen Bradford

The process for getting a Section 8 tenant:

1. Post ad on Section 8 website and craigslist.

2. Create a waiting list of tenants and select a resident.

3. Pass your property inspection from Section 8. They will help you get approved by telling you what you need to get fixed.

Also, I would highly recommend that you Google Section 8 in the city that you're from and visit the office and ask all your questions. Also, look for meetings in the area and try to find an investor who has at least 5-10 houses with section 8 and learn and model your business after him. 

Hey Creative BP'ers! We are in the process of buying an apartment building where the owner has agreed to assign the LLC ownership to save on closing costs. (I did this on my last 25-unit and closing costs were only $800, it did not trigger a sale and owner financed). 1. Are there any creative strategies we can apply at closing for the LLC that was established in 2005? 2. Are there any obstacles that we may face by not creating a new LLC and taking over the existing LLC? 3. Has anyone created a business line of credit against an LLC they assumed ownership? Or is it no different than just creating a new LLC? Thanks in advance for the help!

Originally posted by @Philip Bashaw:

Swat,

I'd love to see the more experienced investors comment on this because I think it would be good to get their take on it. Its obvious that the seller doesn't want it anymore and personally, I'd be looking for the best possible price and asking him what he really wants for it, what was he planning to do with the money and so on...I'd push to the point of pissing him him off. 

A successful, local wholesaler here told me that when your offer makes you uncomfortable, that's a good offer or the offer you should make on the property. I'm very interested in this because I'm looking to start making offers very soon in my area on small apartment buildings.

Phil

@Philip Bashaw: 

Good point about getting the lowest number. 

I think at this point in the negotiation, he's being quite firm on his price. Since he hasn't really budged on his price, I would have to come back with something convincing. Maybe a contractor bid  or offering to close quicker. I will think about how to tackle that moving forward. 

The numbers start to look really good if we were to buy it at $160K. 

@Gilbert Dominguez

1. S: I am with you and much rather prefer to be conservative and run the numbers low. I've had inspections and contractor bids. Would like to get more feedback on the numbers provided below. 

How did you come up with your repair figure of $200K. Granted that comps would be useful for the ARV

2. The quotes for rehab are from  $160K to $320K (the $320K contractor literally said he padded his numbers by 30-40% because he wasn't able to get into all of the units, some of the units doors were locked).

3. If we go by the higher quote, it would be $320K rehab + $220K purchase price = $540K ALL-IN / $750k ARV = 72% LTV including rehab

4. Rehab per sft @200K
$200,000 REHAB / 8080 sft building = $25 per sft

5. Rehab per sft @320K

$320,000 REHAB / 8080 sft building = $39 per sft 

Note: Our last full blown rehabs were $18-24 per sft range. 

but exactly how did you determine that the ARV would be between $750K and $800K?

6. Based on net income. Proforma NOI per month:

 $800 x 15 x 90% occupancy x 50% expense ratio = $5,400 / mo NET

NOI x 12 months = $64,800

7. CAP valuation 

9 CAP = 720,000

8 CAP = 810,000

Note: The median rents are over $1000 in the city (a top growth rental market in TX), we will be targeting the affordable C housing demographic for quick fill up, predominantly spanish speaking renters as seen by the B property just north of this property. 

I am thinking you may be grossly underestimating the repair cost and to use a time line of between 90 days and 120 days seems awful short to me to get that much work done on 15 individual units plus the work that need to be done generally on the entire building. Are you quoting figures and timelines provided to you but GC's?

8. The numbers were quoted by GC. It is 8080 sft., which means it's a smaller building with 1 bd 1 ba. I would determine it to be an 4-8 month rehab to be conservative. 

In terms of the timeline for the loan, it would need to be at least 12 month loan at its shortest, and 36 month loan if we were refinancing to season the  note and allow time for bank to refinance. 

Please answer these questions for me and I will go from there. I can even guide you to the proper financing. 

9. Thank you for your input. I hope I was able to answer your questions above. 

1. Did you get the last 12 month rent roll and profit and loss statements? Without these documents it's nearly impossible to determine the value and upside of the property.

2. Right off the bat, the objective is to qualify the deal, build rapport with seller, and determine if the seller is motivated (Ask: why selling? What are your specific needs to close this deal?). 

3. You will need the following to qualify the deal: 

• NOI: $xx
• Occupancy: xx%
• 12 mo Gross expenses: $xx
• Owner or tenant paid utilities?: xx
• Unit mix: 
• 1 bd: x
• 2 bd: x
• 3 bd: x
• Average rent per unit: 
• Local market rent per sft: xx
• Total rentable sq ft of property: xx 
• Flat roof or pitched?: 
• How much deferred maintenance per unit (ex. $3000/unit)
• Who manages the property? 
• How many section 8 tenants does it have? 

Most investors have a spreadsheet for this, but this is the best way I can relay it on this forum. 

4. It seems like a high price per unit -- $75K+ per unit for a build that is at least 30 years old / 1980 built. We don't have all the numbers though, so the rents must be very high.

5. The idea is similar to Warren Buffett's philosophy of buying out good assets that are mis-managed. You would then come in and stabilize the property through your construction/property management prowess to produce upside in cash flow and equity. Also, the mismanaged would allow you to get some concessions from seller in the form of a seller carry note, repair credit, etc. 

Just my $0.02 cents. 

Good luck! Always make sure you are marketing so you can skip the bad deals fast and move onto the next deal. It's a numbers game so never fall in love with any property. 

I know of one person that did this and it worked and closed. 

Seller is motivated, and has to sell a portfolio of properties -- 24 units (six deeds, 4-unit properties)

Transaction 1: Have the seller deed you 2 properties (8 units) free and clear, then get a lender to give you a loan on 75% of those 8 units. Use transactional funding or a private lender if you don't want to use borrowed funds for the 25% down. 

Transaction 2: Use the cash from transaction 1 to put as a down payment on the remainder 16 unit portfolio. You would use a different lender on transaction 2. 

Key is to have a motivated seller that is willing to work with you. 

Make sure you have a real estate friendly creative attorney who can draft the docs and make it clear to the seller. 

This could be done with land, office, fractured condos, etc. The key is to have assets in the portfolio that are separately deeded. 

Just wanted to share this off-market 15-unit apartment complex deal and get some more ideas. 

Would like to conjure up ideas on how to get this deal funded with short term financing.

My initial thoughts: Property is not pretty, needs a lot of work, has no occupancy, and only 15 units. Reason I am interested is the ability to unlock $200K in equity in less than a year with a strong construction / management team, and a very high demand rental market. Strong market to hold an apartment complex asset. 

Goal/Mission: Rehab with a strong local GC (I would be on-site during the construction) on a 90-120 day timeline, refinance, hold long-term or sell for equity. The numbers are showing a conservative $250-300K in gross equity at a 9 CAP after filling up at $800/unit

Details on the North TX apartment complex:

Price: $240K (16K/door) 
Rehab: $200K  ($15K/door). Every unit needs full rehab. Needs new roof.
Units: 15

ARV: $750-850K at $800/mo
Area: C
Market occupancy: 92%
Built: 1960s (90% brick/10% wood) Individually metered. 

ARV with repairs: 60% 
Owner is retired and out of state. Free and clear. Will not carry any financing. 
Occupancy: 0% (vacant for less than 10 months)

Market: Most of the apartments in the area are getting repositioned. There's a lot of new construction 3 miles north of this property. 1 bd are starting at $1000/mo. I ran test ads and get at least 30-50 responses a week for $800/mo, it's a hot rental market. This would be a solid C-class property in a C area. There is a B-class property less than 1 mile of this property with 100% occupancy. 

1. What would should we consider for financing? What type of financing should be our criteria. 

2. Any other creative ways of getting this deal done? 

I have one, check my sig and shoot me an email.

In terms of getting it accepted, it would usually mean the property is mismanaged and you would have to convince the seller that you can get the job done to get it stabilized. There would have to be upside for you and enough equity to make it worthwhile for you. 

In terms of negotiation, I would focus on what is the big pain of the seller and find out truly if he's highly motivated. 

You would then have to demonstrate through your credibility kit/team that you can manage the property and hit your goals. You may have to put together a proforma showing your goals and how you will do it. Basically paint a picture for your seller. 

Good luck!

This is a great story. Thanks for sharing. It reminds me of when I didn't pull the trigger on 4-unit REO in a depressed SoCal market and I was using FHA. There were 5 of these properties that came on to the market (between $300-350K) and I overlooked the deals because I was pre-occupied on my other projects, my significant other wasn't too fond living with tenants, and I had to tack on an extra 30 mins to my commute.

What was so interesting about the deal was that I only had to put $20K down and could've lived for free and have extra cash in my pocket every month from cash flow. 

I regret it now, because I drove the neighborhood and saw the properties were cleaned up. It got me curious, so I pulled out my Redfin app and saw one of the properties recently sold for $800K! That's more than double the equity and also rents have risen substantially since then. 

Good job on taking action! Good luck with your next deal!