All Forum Posts by: Ben S.

I think the answer depends on how active (or not) you want to be.  If you don't mind taking an active "Sponsor" role, you could use your $200,000 as the basis for a syndication, meaning you would raise additional equity from investors and leverage that alongside your $200,000 to do a larger deal.  We typically structure our syndications as "90/10" deals, meaning we raise 90% of the required equity from investors and contribute 10% of our own capital.  In this case, if you did a 90/10 structure, in theory, you could look to do a deal that requires $2,000,000 in equity, which means you would have to raise $1,800,000 from investors.

If you were to do this (again, in theory) if you took out a 75% LTV loan you could acquire an asset for $8,000,000. If this is your first real estate venture, I would suggest that might be a bit aggressive and that you should look at a more balanced equity structure (i.e. 50/50) and purchase a smaller asset.

In either case, your role as the "Sponsor" would entitle you to earn some fees and a "promote" for your work in making a successful project.  The "promote" just means that after your investors are paid a pre-determined return, you would receive something more than your proportional share of cash flow thereafter.

As someone else pointed out above, if you aren't an experienced investor and desire a more passive investment, you could invest as a limited partner (i.e. part of the 90%) in someone else's deal.  Your returns will be lower, but it would result in completely passive income.

My apologies for the long and confusing answer.  I hope this helps.

Investment Info:

Large multi-family (5+ units) fix & flip investment.

Purchase price: $25,000
Cash invested: $300,000
Sale price: $715,000

We acquired several abandoned and functionally obsolete duplex buildings from our city's land bank authority. We carefully rehabbed these buildings (occasionally going over budget) but stuck with it and managed to complete the project, lease up all of the units, and divest at a healthy upside which allowed us to segue our returns into larger investments.

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

We acquired these assets as vacant buildings with significant redevelopment upside.

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

These properties were purchased from the local land bank authority.

How did you finance this deal?

Personal equity + recourse construction financing.

How did you add value to the deal?

We brought new life back to these buildings, creating new living spaces for our tenants and enhancing the quality of life for the neighborhood as a whole.

What was the outcome?

We divested of these assets a significant gain, allowing us to leverage our equity into larger multifamily investments.

Lessons learned? Challenges?

Never buy and install appliances until you have tenants ready to move in! People steal them!

Investment Info:

Large multi-family (5+ units) commercial investment investment in Detroit.

Purchase price: $1,645,000
Cash invested: $475,000

Our firm acquired this property with significant deferred maintenance to be addressed, but with rents ~$200 per month below market. We are mid-stream through a value add process which will enhance the quality of life for our residents and increase the value of our asset through unit upgrades, common area and amenity enhancements, and ultimately rent increases.

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

This asset is located proximate to a major hospital system as well as a large university. The rents were substantially below market and we identified significant arbitrage opportunity through select unit and common area upgrades, leading to rent increases and reduced operating expenses. We acquired the asset with bank debt and will refinance with non-recourse agency debt, returning significant capital to our LP investors and setting the stage for stable cash flow thereafter.

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

This opportunity came to us off market through a trusted broker relationship.

How did you finance this deal?

We syndicated 90% of the required equity to place next to our own 10% investment, leveraging the remaining capital requirement with bank debt.

How did you add value to the deal?

- Unit upgrades
- Addressed deferred maintenance
- Increased below market rents
- Filled vacant units
- Instituted professional management systems and processes

Investment Info:

Large multi-family (5+ units) commercial investment investment.

Purchase price: $2,000,000
Cash invested: $560,000

This 40 unit value add investment presented us with an opportunity to streamline management operations and increase below-market rents. Investment has been made to address deferred maintenance items with the objective of refinancing our acquisition loan with non-recourse agency debt once the value-add process is complete, returning a significant portion of LP capital to our investors.

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

We were made aware of this opportunity off-market and were able to negotiate a transaction to acquire the asset ahead of it coming to market.

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

We identified this asset through a trusted broker relationship.

How did you finance this deal?

We syndicated equity for this investment (25%) and procured debt financing (75%) for the balance of the cost. We were able to negotiate a 12 month interest only period with our lender to help facilitate the value-add process.

How did you add value to the deal?

- Increased below market rents.
- Reduced excessive operating expenses.
- Streamlined and property management processes.
- RUBS implementation.
- Addressed deferred maintenance.
- Implemented defined tenant selection criteria.

What was the outcome?

- NOI has increased significantly.
- Delinquencies have been reduced.
- Operating cost is ~15% lower than @ acquisition.

Hello,

We recently upgraded to Buildium as we are growing our portfolio and are under contract on a 40 unit deal.  For anyone who uses Buildium, do you collect all rental payments into one bank account through the tenant portal, or do you set up a bank account for each property?  (Experienced with real estate, new to accounting!)  Any insight on this is much appreciated.

Thanks!