Walkthrough a Multifamily Real Estate Life Cycle

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Ben Suttles and Feras Moussa walk through a multifamily real estate life cycle showing you the ins and outs of a multifamily real estate syndication! From the challenges of the deal, actual investor returns, to the overall project summary!

VIDEO TRANSCRIPTION

00:00
we are live now hopefully hopefully you
00:01
see the red dot then
00:03
there’s nothing that red dot i’m talking
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about man
00:05
[Laughter]
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you didn’t know about the red light come
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on dude no i’ve just been winging this
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thing the whole time
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yeah but welcome to money mondays
00:13
everybody we do this every monday 3 30
00:15
central i am your
00:16
favorite host ferris and that’s been
00:18
over there um
00:20
monday 3 30 central we go through a
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bunch of different topics if you have
00:23
suggestions for future ones please let
00:24
us know
00:25
but this week we are going talking about
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the real estate life cycle on a
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multi-family property
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right so right you got to read it right
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word for word then walk i know but i
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just like to i just like the way
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i feel like i said life cycle yeah i
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know so we’re going to talk about the
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whole
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soup to nuts everybody is as much as we
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can in a 30-minute slot right absolutely
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you know and we’re going to use one of
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our deals as kind of a case study
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in that you know and kind of how we
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found it to how we manage it to
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how we actually ultimately sold it right
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and i think it’s an important thing
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because there’s
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so many moving pieces in this business
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and that’s why um
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you know getting an education and
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understanding how it works is probably
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one of the most important things you can
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do when you’re starting off
01:04
or partnering with people that
01:06
understand how the process works
01:08
you know because otherwise you could get
01:09
in a lot of trouble so
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all right we got a little bit of a
01:13
disclaimer you always like to do
01:14
disclaimers
01:15
disclaimer is you know we’re going to
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talk and ben talks a lot
01:19
i talk but ben talks more but we’re you
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know we like to give candid advice
01:23
candid thoughts but please consult your
01:24
expert don’t go making big important
01:26
life decisions
01:27
just because two guys in a cool studio
01:29
told you so right
01:30
so definitely talk to your experts but
01:32
you know we’ll we’ll be candid
01:33
yeah generally we like to be very
01:35
transparent and candid and we’ll talk
01:36
about the good the bad the ugly
01:38
but please talk to your expert before
01:39
you um make those decisions so that’s my
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disclaimer
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you did a great job man i know i do the
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best all right
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so this was our first deal that we did
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as a team
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you know we had both kind of done some
01:52
deals prior to disrupt equity’s
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inception
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but this was kind of the deal to kind of
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kick things off for us
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you know uh you want to kind of take us
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through yeah so it’s a deal
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um you know it’s called multi-family
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sorry it’s called woods a decatur right
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we
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used to be called laurel mills we we
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ended up targeting we’ll talk about a
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little bit right but long story short it
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was an ugly duckling right
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it was a real it was a deal that um you
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know took ben uh
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probably a good six hours of the day to
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warm up to
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right and you know but ultimate was a
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deal that i knew that we could not screw
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up right it was ultimately it boiled
02:24
down to me and ben needing to do
02:26
our job and the deal would work we
02:27
didn’t have to bid on rent bushes we
02:29
didn’t have to bet on the market
02:30
anything we just had to get debt in
02:32
place and do the business plan
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those are really the two biggest things
02:35
so um luckily you know so how do we find
02:37
let’s start from the beginning though
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right you know because i think a lot of
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people that are tuning in probably
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you’re you’re trying to get your first
02:43
deal or maybe you have your first deal
02:44
and you’re trying to get your second
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deal
02:46
right so how did how did we find what’s
02:48
a decatur
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yeah so what’s in decatur i mean talking
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to brokers right talking to brokers
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getting a sense of where they have
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interest and where they don’t this is
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where i really like to ask the brokers
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like what deals are they not getting
02:58
interested in why
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right because again those are the ugly
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ducklings and i like those deals because
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it’s a lot less competitive and if i can
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find the right one usually there’s a
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good reason why most people aren’t
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interested
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but if i can find the right one that
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matches maybe what we’re capable of
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doing or what we want to do
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that’s where a deal to be had is and so
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in this case it was a broker we knew
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we had gotten to know very well as the
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only you know one of the only deals we
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had bought from at the time
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but really you know they had didn’t have
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a lot of interest it was a deal that was
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distressed i mean i was really
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distressed
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and you know i remember going out there
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torn this one and another deal
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and offering on both of them and we won
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this one right yep yep
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and so it’s a deal that basically you
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know i remember being out there with our
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property management time art
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and he basically i remember it was rainy
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day and it seems to be
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the first two years of atlanta our my
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experience at the lance it’s always a
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rainy day whenever i’m out there
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out there it’s always dreary out there
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but luckily the past couple times has
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been much better
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much better the past couple times but
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remember it was rainy it was chilly it
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was december
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i remember our is kind of you know you
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know art and he’s kind of looking around
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he’s like
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you can expect a lot of turnover on this
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property and little did i know if he was
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very right but
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you know it was a deal that we knew had
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some challenges i thought he was being
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conservative but yeah
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his turnover percentages were actually
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pretty correct absolutely and so
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um you know that’s kind of how we
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initially solved the deal found the deal
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and at the time you know the broker came
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back and there’s a little bit of
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negotiation but we ultimately got it
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under contract right
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so okay so beyond the numbers though i
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mean because you’re the one who did the
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initial
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uh property tour right what was what was
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your sense of the area
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being on site i knew that the the guys
04:28
operating it had
04:29
no business being in the business okay i
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mean you could tell they didn’t know
04:33
what they’re doing
04:34
they had nine down units that ultimately
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we knew what was there
04:37
was like a 30 000 repair yes they
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basically had nine dollars because yeah
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that i think we had budgeted 150
04:44
thousand dollars for it ended up being
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30 000
04:46
to get a high quality professional grade
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business
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version in there right and so um that
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was the kind of that i mean but really
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you can just tell the guys that know
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what they’re doing
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you could tell the area each exit from
04:59
the highway coming from downtown was
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was basically until if i kind of go
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towards downtown is improving so that
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tells me
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things are coming out our way yeah right
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there’s some good comps there’s a path
05:08
of progress yeah the dealership was 100
05:09
occupied
05:10
there’s a lot of things that you can see
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we like that and then obviously there
05:13
were some new developments
05:14
that was before we got under contract i
05:15
remember we got out there and then
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during
05:17
i think it was actually during dt right
05:19
or maybe right after we bought it we saw
05:20
that there was some construction going
05:21
on yeah
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and so um yeah we got i’m gonna say we
05:24
got lucky right now it was not part of
05:25
the plan but
05:26
the deal right across the street brand
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new deal went up there and i mean we saw
05:30
it a couple of players so one thing i
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wanted to point out too i mean obviously
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we buy all of our deals through brokers
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right we’re not doing cold calling or
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mailing letters or any of that stuff
05:37
right but one thing i we also target
05:40
is the wrong broker on the right deal
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too right
05:44
you know and i’m not going to say that
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that’s what that instance was but we’ve
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also yeah in this case it wasn’t
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yeah but we’ve also had deals like that
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where you might have a guy that maybe
05:53
is does mainly residential stuff but he
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stumbled across a client that has
05:57
multi-family right that is a guy that
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you want to you want to go target
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and potentially get a good deal on
06:02
because he’s not going to he’s not going
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to have the buyer’s list
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he’s not going to price it accordingly
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right but this this deal was priced to
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sell
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because the guys that we had bought it
06:10
from had bought it out of an reo
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out of the bank they had picked it up
06:14
and he’s on
06:15
yeah like i think 15 or 20 000 you know
06:18
um
06:18
a door and we ultimately got it in what
06:21
38 a door yeah
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you know so even back then that’s a heck
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of a deal now
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it needed some work but you know it was
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one of those deals where even on the om
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they couldn’t really capture a great
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picture of it
06:36
i think one of the pictures was uh you
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know it had like a broken down
06:39
vehicle or something i’m like man this
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is the best shots you guys got so
06:42
anyway so we can go over the executive
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summary we’re gonna go blow through this
06:45
real quick folks some of you guys might
06:46
have heard the story already
06:48
but you know it’s location we could tell
06:49
it was management and i mean the area is
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high demand right those are like three
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big things in their deal
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right the lacrosse 100 occupied we knew
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if we got units online we can get them
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at least
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we knew that the leases that were
06:59
getting below market and so you can tell
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just management play right well and then
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they were self-managing right and they
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were just they
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they weren’t doing yeah they weren’t
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doing it the the proper way
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they were just a couple of guys and they
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hired on a gal that was going to be kind
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of their manager and they were just
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doing everything kind of in-house and
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it’s very sloppily done and and poorly
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executed
07:18
so i use i would say it’s the most most
07:20
of this play was a management play
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you know then you had the nine down
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units right but you know that just takes
07:25
some cap back so we had 900k
07:27
that we uh we ultimately got through the
07:28
bank that we’re going to put into this
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and this is a
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99 unit deal so i mean it was a
07:32
substantial rehab budget for
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for what it was right so you know um
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some of the just you know a little bit
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of a map you know of where this was at
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and this is obviously in atlanta i don’t
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know if we really talked about this but
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decatur
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is kind of a trendy sub-market within
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the atlanta msa
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and you know i’d say if you’re looking
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at this map folks like decatur is on
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the north side of this highway kind of
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going up maybe a couple few miles
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and it’s really gentrifying all the way
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along that i-20 corridor
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and uh a lot of crazy awesome things
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were happening right then and there and
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it still is
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so one of the deals that i’d like to
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point out too because we use this and we
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actually
08:11
we secretly shot this deal that was done
08:13
pretty well you know
08:14
was a guy bought the vacant property
08:16
across the street
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or across the highway you know i think
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he actually he spent more on it
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vacant than we had on our deal he bought
08:23
his at 39 we bought ours at 38. his was
08:25
make sure you ask yourself twice
08:27
are you paying in the right price yeah
08:29
you got it you know because i was like
08:30
wow okay well if that guy’s going to do
08:31
that
08:32
but anyway so he ended up putting 40 000
08:34
a door into it folks all right so now
08:36
let’s say he’s into it for 79.
08:38
how much did he flip that out 125 000 a
08:40
door he ended up selling that for
08:41
yeah i think 100 yeah around there yeah
08:43
so i mean that was happening as we were
08:45
as we were you know purchasing this
08:47
right and then there’s a few things the
08:49
the property across the street it was
08:50
occupied and had a waiting list
08:52
so obviously there’s a ton of new demand
08:54
there’s some new development
08:56
you know um you know obviously there’s
08:57
some walmarts and some other things that
08:58
are happening this is
08:59
still a solid kind of i would say c plus
09:02
area
09:03
maybe b minus in certain parts right
09:05
because it is gentrifying you’re gonna
09:06
have pockets
09:08
but um you know these were some of the
09:09
things that we were seeing when we were
09:10
kind of doing our market research
09:12
um you know going through some of the
09:14
returns right you obviously have to have
09:15
a deal that
09:16
there’s there’s a solid exit plan even
09:18
if there is very little cash flow maybe
09:20
up front
09:21
right because it’s a heavy rehab play
09:22
it’s a repositioning you’re trying to
09:24
you know kind of revitalize a a tired
09:27
deal
09:28
you know there needs to be a strong exit
09:29
right and in this case right we were
09:31
projecting to do a refi and kind of year
09:33
three
09:34
four ish um and then maybe hold on to it
09:36
for a few more years
09:38
um ultimately we execute our business
09:40
plan when
09:41
obviously the broker as brokers do they
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keep in contact with you and say you
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know i mean hey how things coming along
09:46
you know
09:47
you guys looking to sell what’s the plan
09:49
um and we were obviously constantly
09:51
providing him with
09:52
our financials and he ultimately found
09:55
um you know somebody to actually buy it
09:58
right
09:59
you know and so it was uh you know i
10:01
think in year two
10:02
we decided hey this is 18 months yeah i
10:05
mean start to finish 18 months or really
10:07
four at the 16 month mark right yeah
10:09
yeah found someone buying ultimately you
10:10
know people always ask why does someone
10:11
buy a deal right
10:12
whenever we’re selling it why would the
10:13
other guy buy it and ultimately we did
10:16
we did just one phase of a possible
10:18
upgrade right we brought down units
10:19
online
10:20
we improved a small subset of them but
10:22
we showed the next buyer look
10:24
if you make the units look like this you
10:26
can get this 150 dollar rent
10:28
now we were out of capital right we had
10:31
done our capex we had not plan upgrade
10:33
all the units right
10:34
but the next guy can come in with
10:36
capital make the next set of
10:38
improvements to match what we did
10:39
because we already showed them the path
10:41
and then they can get the rent premiums
10:42
right and then whenever you put get the
10:44
rent premiums you’re now collecting more
10:45
money therefore adding more value
10:47
and then possibly sell it to the next
10:49
guy or just hold on cash flow and so
10:50
there’s a real reason for people to sell
10:52
right and kind of buy as well
10:53
so that was kind of you know we always
10:56
tell people we’re opportunistic right
10:57
you know
10:58
and ultimately i think we got 75 80
11:01
return and if you guys are looking at
11:02
the same slide we were talking about 104
11:05
returning year five yeah so we got a 70
11:07
or 80 percent return in year two
11:08
yeah you know so of course we took 1.5
11:11
1.5
11:12
right so ben likes to round up all the
11:14
time so i don’t get it
11:15
it’s year two but yes you’re right so
11:18
anyway so that’s what that we’re big
11:19
proponents of if you can get a good
11:21
return for your investors
11:22
you know your irr is gonna be through
11:24
the roof obviously right and so but
11:26
to take a step back so we got it under
11:28
contract then you brought me out
11:30
for due diligence what was what did my
11:32
face look like when i went when i got
11:33
out of the before and after man ben was
11:34
just kind of like ben was pissed i was
11:36
like jeez like
11:37
this guy you know the time i didn’t know
11:39
ben well enough and i’m like ah i don’t
11:42
know if i want to partner with this guy
11:43
you know but by the end of the day
11:47
you know shock was going to say he had
11:48
the look of disappointment
11:51
slash shock a little bit of both well
11:53
the deals that i had done here in texas
11:54
were significantly cleaner deals and
11:56
this was something like in a whole
11:58
nother game but i told ben
11:59
i’m like relax chillax bro beans you
12:01
know it would be all right
12:03
well i think we witnessed a drug deal go
12:05
down i don’t know there was there was a
12:06
lot of shady stuff that was happening at
12:07
this property folks so
12:08
the dd was was very eye-opening but by
12:11
the end of the day
12:13
you know we’re at dinner you know i’m
12:14
kind of decompressing just processing it
12:16
all
12:17
and i started seeing the potential you
12:19
have to look beyond
12:20
the aesthetic look and feel of the
12:22
property and say is this a profitable
12:24
endeavor
12:25
right and ultimately the numbers spoke
12:26
for themselves we had a clear business
12:28
plan
12:29
right and i felt like we could execute
12:32
on it so
12:32
you know i started kind of getting on on
12:34
board pretty quickly
12:36
um so we obviously got through the due
12:37
diligence um
12:39
you know some people have heard this
12:40
story we we went with um a lender that i
12:42
would probably not recommend
12:43
i’m not gonna say any names you can
12:45
message us offline if you’d like
12:47
you know but um because the deal is a
12:50
little bit challenging we went with this
12:52
kind of bridge lender that
12:54
um you know ultimately got across the
12:56
finish line in 30 days
12:57
but they made that deal even more
12:59
challenging than it needed to be
13:01
totally you know i mean from not
13:03
disclosing things up front on the
13:04
closing
13:05
um and what we need to bring to the
13:06
table at closing to
13:09
be dragging out our lender draws at
13:10
every possible point
13:12
so you know i mean ultimately me and
13:14
ferris and mark kinney who was our
13:16
business partner on this deal too
13:17
we just had the stroke checks and and
13:19
unjammed the rehab
13:21
while we waited for them to reimburse us
13:23
because they at one point they didn’t
13:24
reimburse us for six months
13:26
right you can’t do a rehab play when
13:28
you’re waiting around for six months to
13:29
pay everybody
13:30
so that was kind of a big challenge for
13:32
this deal too but i’ll go ahead and
13:34
pause do we got any comments or no
13:36
let’s take a look um so multiplying uh
13:39
multi
13:40
uh money mondays we do this every monday
13:42
3 30 central for those of you tuning in
13:44
you need you need your starbucks i
13:45
already finished my starbucks you didn’t
13:46
give me enough but
13:47
you know do it every monday 3 30 central
13:49
right if people have questions comments
13:51
let us know if you have ideas for the
13:52
next topic let us know
13:53
please come on and you know kind of
13:55
going through today’s uh
13:57
comments let’s see so ronnie says what’s
13:58
up guys so ronnie of course
14:00
hey our uh one of our top i’d say uh top
14:03
fans but
14:04
big big big supporter and we’re a big
14:06
supporter ronnie ronnie’s doing some
14:07
great things out there we
14:08
also have uh earnest which he’s labeled
14:12
the top fan so sorry
14:13
ron says that but ronnie did have a
14:15
question everyone talks about the
14:16
acquisition process no one talks about
14:17
the disposition process
14:18
can you dig in more on something
14:19
absolutely man yeah i’m trying to kind
14:21
of
14:21
trying to tell a story so we’ll
14:23
definitely dig into that yeah
14:25
um jefferson savion you know is kind of
14:29
asking a question
14:30
about ronnie’s as well jefferson gone
14:32
says happy monday hope everyone has a
14:33
start great
14:34
has a great start of the week yeah our
14:36
mondays are nuts
14:37
we’re trying to start off the monday’s
14:39
rough just to the right this is actually
14:40
probably the funnest part of our day i’d
14:41
say
14:42
you know i mean i look forward to it
14:43
yeah ronnie says no applaud today
14:46
ah man i’m i’m very i’m very
14:48
self-conscious about it at this point
14:49
man
14:50
that’s very true man every monday i’m
14:52
just like ah it’s a monday
14:53
what’s ronnie are you gonna call me out
14:55
on it or not so maybe we’ll do applied
14:57
money intentional me and ben will be no
14:59
absolutely gonna have to do it all right
15:01
so let’s keep going
15:02
all right all right so we got in
15:04
obviously we had some challenges on the
15:06
lender side
15:07
you know i think operationally it was a
15:08
challenging play too right you know i
15:10
mean
15:10
there was a fair like art had said we
15:13
ended up having a lot of turnover so i
15:14
think
15:15
after year one we had pretty much gone
15:16
through the whole entire rent roll ever
15:18
you know people had moved out completely
15:20
and we’d shuffled in
15:21
good better paying tenants um
15:24
we also had to shuffle in a couple
15:26
different managers finally finally
15:27
landed on a guy that we really like his
15:29
name’s abel
15:30
um you know and he knew that demographic
15:33
he knew how to talk to them he knew how
15:34
to handle them
15:35
and he ultimately did a great job you
15:37
know but i still remember having some
15:39
scary parts some scary moments right he
15:41
got
15:41
jumped um you know by and it just wasn’t
15:44
by a tenant either
15:45
it was by a disgruntled ex-vendor
15:47
remarks
15:48
i would have he had a failure he totally
15:51
came out of the blue and
15:52
it came after our manager man yeah yeah
15:54
but anyway abel put up a good fight
15:56
the guy ultimately got arrested um you
15:59
know and the guy was on drugs so it’s
16:01
just a long story but
16:02
bottom line you know i mean he fought
16:03
and bled for the property too
16:05
um and we’ll be forever grateful for him
16:07
um but
16:08
he got at least up so we had taken it we
16:11
take
16:12
on paper we took it over and i think
16:13
they said it was about 70 or 80 percent
16:15
occupied
16:15
in reality it was about 40. and i think
16:18
of that maybe like
16:19
no really we brought it down to the 40s
16:20
in occupancy then brought it back up to
16:22
95 in like four months yeah so i mean
16:24
and
16:24
i remember brent freaking out at the
16:25
time i’m like relax man it’s gonna be
16:27
okay
16:27
but you’re operating at 40 you’re
16:29
operating you’re losing money each month
16:30
you’re
16:30
losing a ton of money right and so you
16:32
have to be very very careful so that’s
16:34
one thing that i
16:35
always say is on these types of plays
16:37
and really in just any play in general
16:39
you need to have reserves right assume
16:41
that you’re running this at a negative
16:43
cash flow position
16:44
and you know to the point where you
16:46
might struggle to even pay your note
16:48
right
16:48
now so people understand on a bridge
16:51
loan right they’re gonna have what’s
16:52
called an interest reserve account
16:53
right so they set aside sometimes six to
16:55
12 months worth of uh
16:57
you know principal and interest and say
17:00
if you’re getting tight on not being
17:01
able to cover the note you can tap into
17:03
that and the the lender on this deal had
17:05
that same thing
17:06
we ultimately only think used it once or
17:07
twice but it came in handy
17:09
right and they force you to use it and
17:11
they force you to escrow it anyway so
17:12
it’s your money
17:13
you might as well use it when you need
17:14
to so we kind of got it all the way down
17:16
to 40
17:17
occupancy right you know we got out rid
17:19
of all the drug dealers and all those
17:21
all those folks got good paying tenants
17:23
in there cleaned it up
17:25
updated the property interiors exteriors
17:27
we did a paint
17:28
we added playgrounds you know we updated
17:31
the pool the pool hadn’t been online for
17:32
years yeah we brought those on but note
17:34
the self
17:36
pool suck bringing them on behind we
17:38
brought it we made this thing look
17:39
beautiful but we couldn’t open it
17:41
the lawsuit they wouldn’t grandfather us
17:43
in right so you had to have a restroom
17:44
that was accessible and we just didn’t
17:46
have the budget to build a progression
17:47
but the next guy was doing that next
17:48
that was
17:49
those who play for him right you know i
17:50
mean hey we did the heavy lift on the
17:52
pool now all you got to do is just
17:53
you got to rearrange the office and the
17:55
beautiful pull did help us
17:56
close some leases no it absolutely did
17:58
because we kept it clean right now
18:00
tenants see that you’re spending money
18:01
on the property right people want to see
18:02
that
18:02
yeah that’s it and then it turns into a
18:04
thing where the tenants start to take
18:05
care of the property for you
18:07
yeah and it’s kind of a snowball effect
18:08
right things start to improve so yeah
18:10
you know um so yeah i mean you know we
18:13
had we had a ton of
18:15
you know turnover we had to evict a ton
18:16
of folks right uh we got security out
18:19
there to kind of help us kind of clean
18:20
it up we pushed rents with abel’s help
18:22
right um collections literally tripled
18:25
in four months
18:26
you know but that’s what happens when
18:28
you up that clean house right and then
18:30
you obviously get
18:31
good paying tenants in there but it’s
18:33
nice when you’re kind of doing these
18:34
deals because you see a tremendous trend
18:36
line
18:37
and so you know and obviously noi
18:39
because we’re trying to keep expenses in
18:40
line too
18:41
you know it’s just getting bigger and
18:43
bigger each month right and as as you’re
18:44
trying to increase your value that’s
18:46
ultimately what everybody’s playing
18:47
uh planning on right is where’s that noi
18:50
at
18:50
where’s collections at and both of those
18:52
look very very strong so
18:54
you know ultimately the brokers knew
18:55
that right and they’re like hey this is
18:57
a good story you know then there was
18:58
still meat on the bone right you know we
19:00
had done the down units we’d probably
19:01
done
19:02
i’d say 30 or 40 of the other interiors
19:05
but that gave
19:05
the other guy at least 40 units that he
19:07
could update as well
19:09
right and there were still a lot of
19:10
things that we wanted to do on the
19:11
property but like we said
19:12
you know we had a finite amount of rehab
19:14
budget and we had to kind of go through
19:15
it right
19:16
so 18 month hold right
19:19
total total return 80
19:23
you know so our investors were pretty
19:24
happy about that just waiting to see
19:25
where ben’s gonna go with that big
19:26
emphasis he did on the 18 month old
19:28
well no no because you’re saying oh it
19:29
was it was a year and a half and i was
19:31
saying it was in year two
19:34
right you know um but so you know i mean
19:36
that’s what can happen folks and
19:38
actually we like we
19:39
we don’t mind these types of plays this
19:41
is probably not a deal that we would do
19:42
again
19:43
but you know it’s nice to kind of say
19:45
hey i’m gonna i’m just gonna roll up my
19:46
sleeves for 18. bigger i’d do it again
19:48
yeah 18 24 months i’m just going to
19:50
grind it out i have enough rehab
19:52
budget and it’s all just about managing
19:54
cash flow it’s a starter you know right
19:55
to get into it it’s definitely a starter
19:57
deal
19:57
and then i think this is one thing that
19:58
we didn’t bring up that we need to bring
20:00
up right
20:01
is that this was a play that got us into
20:02
atlanta it was a market that both me and
20:05
ferris wanted to get into we weren’t
20:07
experienced in that market we weren’t
20:09
known in that market so therefore it
20:10
makes it more challenging to buy into a
20:12
nicer cleaner deal they’re gonna really
20:14
you know they’re gonna expect you to pay
20:15
up right and we don’t want to do that
20:17
so this was a deal that kind of got us
20:19
our footprint and allowed us to kind of
20:21
understand the market even more and
20:23
develop those relationships out there in
20:25
atlanta
20:25
so we could then scale and we’ve since
20:27
bought three more deals out there
20:30
well we love the atlanta market and
20:31
we’ll continue to buy out there so um
20:34
the stats
20:34
right we raised about 1.1 you know back
20:38
then it seemed like a lot
20:39
um you know now in hindsight that’s
20:41
probably our smallest raise
20:44
purchase price was 3.9 million sale
20:47
price was about seven million so
20:49
all in all profits were about two
20:51
million bucks on this deal
20:52
you know and so that’s uh kind of the
20:54
high level stats on the
20:56
on the deal and once again our investors
20:58
were happy and
21:00
that makes us happy so open
21:03
q a i know that let’s talk about the
21:05
disposition process because ronnie
21:06
brought up something
21:07
um you know that we don’t really talk
21:09
about in this business right well before
21:11
we do that
21:11
let’s go through the comments of those
21:12
who tuning in monday mondays through
21:14
this every monday 3 30 central
21:16
if you have questions comments let us
21:17
know if you have ideas for next topics
21:19
let us know but i’m going to go through
21:20
a few
21:21
ryan says abel’s a great guy yes he is
21:23
savion says can you speak on the
21:24
turnover costs associated with
21:26
the unit mix man on that deal turn
21:29
turnovers might as well be upgrades
21:31
managers it was
21:32
because these people were rough it was
21:33
wrong it was rough man you gotta you got
21:35
to realize that
21:36
there was a rough demographic they were
21:39
rough on the units and
21:40
even not outside of that control right
21:43
you know just
21:44
the the management and the mismanagement
21:46
right they did they weren’t keeping up
21:48
with the units either right and so
21:50
their turn or their upgrade prior to
21:52
this tenant moving in was probably very
21:53
sloppily done
21:54
so we had to go in and we had to fix a
21:56
lot of things right and that’s why
21:57
turnover costs can be a killer to deals
21:59
right that’s why
22:00
we try to incentivize people to stay at
22:02
our properties right don’t move out
22:03
let’s build a community right well
22:05
that’s why we like families at our
22:06
properties too because they don’t tend
22:07
to move as much
22:09
right because each time somebody moves
22:10
out even in the best of circumstances
22:12
you’re probably talking three to five k
22:14
right so if you can keep them
22:16
at the property for two or three years
22:18
or maybe even more
22:19
right you’re not having to spend that
22:20
three to five k for that unit each year
22:23
right now you got to maintain it but
22:24
you’re not having and you’re not having
22:25
to upgrade every single year
22:27
you know so that was kind of the case in
22:29
this with this deal which is
22:31
we had to move them out and we baked
22:33
that into our rehab plan too
22:34
so you know it wasn’t wasn’t anything
22:36
that we were out of pocket on
22:38
but talking about the disposition
22:40
process going back to what ronnie was
22:41
asking about earlier folks so
22:43
you know there’s there’s a couple ways
22:44
that you can skin this cat right you can
22:46
do an on market
22:48
right which is fully blasted emails
22:50
which i’m sure anybody that’s in the
22:51
business understands those you got a
22:52
nice pretty you know sexy om
22:55
and um you know they do a best and final
22:58
and all that stuff right
23:00
or you can shop it to a couple of
23:01
brokers that you know in the in the area
23:03
and say hey we’re gonna sell this off
23:05
market right and they’ll still do the
23:06
due diligence and sometimes they’ll even
23:08
put together maybe a
23:09
a smaller type of om probably three to
23:12
five pages versus 40.
23:14
and uh then they go out to their buyers
23:16
that they know are active in that sub
23:18
market and they start saying hey
23:19
these guys these guys are looking to
23:20
sell this is what they want here are the
23:22
financials here’s our little
23:24
deck what do you think right yep and um
23:27
you know so it’s just not more
23:28
broadly marketed right because we didn’t
23:30
know if we you know we kind of knew we’d
23:32
probably sell but it wasn’t certain
23:33
all right we were testing at the end of
23:35
the day why do why do people do it that
23:37
way right well two things you’re you’re
23:39
you’re testing the market right i want
23:41
to see how much i could get for this
23:42
right now right
23:43
and we were pleasantly surprised so that
23:46
was pleasant surprise no i mean i i
23:48
thought
23:48
it was like no i’m like yeah ben was
23:50
like no and i’m like yeah
23:52
you know and ultimately it comes back
23:53
but if that guy if he’s willing to pay
23:55
that then i’m willing to sell it right
23:57
you know and so that’s one reason why
23:59
people do that too
24:00
the other reason that people sell off
24:01
market versus on market is it’s a lot
24:03
less disruptive
24:05
no pun intended to the on-site staff
24:07
right when you have an on-market deal
24:09
there’s going to be multiple property
24:10
tours a week
24:11
you know the staff is going to get
24:13
disrupted they’re going to be asked a
24:14
bunch of questions and ultimately they
24:15
make them anxious throughout the process
24:17
that
24:18
am i gonna have a job with the next guy
24:20
or gal
24:21
and so um now are there still tours
24:24
on an off market deal yes to an extent
24:27
yeah but it’s gonna be a lot fewer and
24:29
far between and you can usually play it
24:31
off as some kind of a lender inspection
24:33
or an insurance inspection or whatever
24:34
right so therefore not to spook the
24:36
staff
24:37
and so that’s the reason why people do
24:39
an off-market transaction versus an
24:41
on-market transaction
24:43
but we found our buyer you know um and i
24:45
won’t name names but a lot of people
24:47
probably know him he’s a good guy out of
24:48
florida
24:49
um you know and he ultimately uh bought
24:52
the deal and
24:53
you got to go through kind of the the
24:54
process with the lender on his side
24:56
right they’re going to ask for a bunch
24:57
of financials a bunch of backup what did
24:59
you do
25:00
you know as far as your rehab um and you
25:03
want to be forthcoming
25:04
right you know that was the one thing i
25:06
didn’t like about the people we bought
25:07
it from
25:08
they were not forthcoming on their
25:09
financials and they really weren’t all
25:11
that helpful
25:12
right where we want to make the deal
25:14
work right we want you to get financing
25:16
because i don’t want you to use that as
25:17
an excuse to back out the deal
25:19
so we’re always good we’re always
25:20
willing to say hey whatever you need
25:21
we’re willing to provide it
25:23
and so we did that with him um we had
25:26
you know one or two um extensions but we
25:29
ultimately got it across the finish line
25:31
yep so let’s keep going then so i know
25:33
it’s already four o’clock so you know
25:35
usually wrap up at four o’clock but
25:36
we’ll do a few more questions see if
25:37
anyone has more comments questions
25:39
uh ronnie’s asking how much working
25:41
capital raised for the deal and what’s
25:43
typical
25:44
that deal is nine hundred thousand
25:45
dollars ten thousand a unit
25:47
usually not that high right it just
25:48
depends on decisions that was the rehab
25:50
rehab side sorry the working capital
25:52
again it really depends on if you’re
25:53
doing a deep rehab or not
25:54
if you’re doing it deep rehab double
25:55
what you need i mean really save more
25:57
money
25:57
yeah right yeah that’s a hard question
25:59
to ask for i think we i think we had
26:00
about 150 to 200k on that deal
26:02
right you know so i mean it’s it’s rule
26:04
of thumb folks is five to ten percent
26:07
right if you if you if you have a heavy
26:09
rehab plan like
26:10
play like that you should probably have
26:11
more than that great so let’s keep going
26:13
then what’s your thoughts on decatur now
26:14
we like it i love the caters up it’s a
26:16
sexy it’s a sexy mark it’s gentrifying
26:18
you know there’s a lot happening there
26:20
but um you’re not buying a 38k
26:22
per door deal and anywhere around
26:24
decatur anymore you are come talk to us
26:26
yeah definitely we were interested so
26:28
chris collins says hey guys how do you
26:30
establish your management out of state i
26:31
know you have in-house disrupt
26:32
management but do you hire local for
26:34
on-site yep
26:35
do you keep previous management
26:36
personnel do you send people from texas
26:38
a little bit of everything right so you
26:40
know if you’re going to manage out of
26:41
state
26:41
a you’re obviously going to have a local
26:43
property manager that lives at the
26:44
property local staff
26:46
now then the question next because
26:47
you’re regional right do you if you have
26:49
enough scale you really want that
26:50
regional local right they can go drive
26:52
to the property every freaking day if
26:53
they need to
26:54
right and then you have back office and
26:56
support that still needs to get out
26:57
there occasionally right now you can
26:58
have the regional be
26:59
you know central and they’re having to
27:01
fly out there very often but honestly if
27:03
you have enough scale and you can it’s
27:04
better to have that person local no
27:05
things just come up right and so the
27:07
more you can
27:08
do that the better but now it’s all
27:09
about numbers right and on this deal we
27:11
did have a local property management
27:12
company this was a few years back
27:14
and they did a good job you know but
27:15
ultimately i always i always equate
27:17
if you’ve got a good manager and and
27:20
maybe even a good regional which we had
27:22
on this deal especially we had spring
27:23
and we had abel they were a
27:25
dynamic duo um and they ultimately did a
27:28
very very good job right but if you
27:30
don’t you’re gonna have challenges
27:31
so so we’ve got one last question from
27:33
trina on the exit strategy
27:35
where’s your profit sweet spot that
27:37
would make you look at an earlier
27:39
exiting plant
27:40
that’s a good question um it depends on
27:43
a lot of things i mean all yeah
27:44
ultimately we need to look at net profit
27:46
including if we
27:46
you know assuming the loan or have to
27:48
pay off the note
27:50
but net you know i’d say if you’re above
27:52
30
27:53
a year that’s a good deal right average
27:56
annualized return average yeah so if i
27:58
you know if i if i can sell in year
28:00
three and get 90 percent
28:02
again you know i mean you know maybe now
28:05
above 25 is probably the you know
28:06
because
28:07
most deals you go into you’re doing 15
28:09
to 20 average annual right so if you
28:11
kind of beat that quite a bit probably
28:12
make an exit
28:13
yeah and so it’s very and it you know it
28:15
depends on what’s going on maybe that
28:16
market is not working out so well
28:18
the deal is you know you’re able to make
28:20
an exit maybe you want to make that exit
28:21
right it depends on the situation and we
28:22
just looked at we ultimately looked at
28:24
the price per pound too right we said
28:25
okay hey i don’t think we’re going to be
28:27
able to get much above
28:28
what we’re gonna sell it to this
28:30
gentleman for um
28:31
you know and ultimately it depends on
28:33
how much capex do you have left right
28:36
you know do you have more money to
28:37
continue to improve the property in this
28:38
case we didn’t right we had run out of
28:40
our capex dollars
28:41
so just it was just a natural life cycle
28:43
of of
28:44
of a deal right absolutely so let’s keep
28:47
going then last question and then maybe
28:49
we’ll call it a wrap but let’s see so
28:50
david asks how do you guys determine on
28:53
what a good property accountant does for
28:55
a property
28:56
so that’s that’s kind of uh maybe the
28:59
question’s not clear so
29:00
the property management company has an
29:02
accountant that does the books of the
29:03
property
29:04
right they’re really doing vanilla
29:06
accounting right they are looking at all
29:07
the expenses they’re looking at all of
29:09
the invoices kind of you know
29:11
paying bills pay bills all of that kind
29:13
of stuff now
29:15
an asset manager right or maybe even
29:18
a forensics accountant right is someone
29:21
that can dig into that and figure out
29:22
where there’s opportunities
29:24
was there being mismanagement of funds
29:25
right you know something negligent
29:27
right that’s a different role than the
29:29
property accountant maybe
29:30
my answer to that and it’s going to be a
29:32
higher experience person too right you
29:34
know
29:34
you’re really your typical property
29:37
accountant is probably 50 60 grand right
29:39
but you might have like a controller
29:41
or a cfo or somebody that’s a little bit
29:43
more experienced right
29:45
you know and those are gonna be the
29:46
people that you would have really really
29:47
dig in and maybe audit something
29:49
but yeah day to day you’re gonna offload
29:51
that to your property management account
29:52
so now ronnie actually asked one last
29:54
question
29:54
very important his question is what was
29:56
this closest starbucks to this deal
29:57
it was actually very disappointing it
29:59
was probably a big reason i wanted to
30:00
sell the deal
30:01
it was not very close by to be honest
30:03
the closest one was basically probably
30:05
either decatur or downtown both were too
30:07
far
30:08
right we went to the one decade we went
30:10
to the one decade but even that was
30:11
still like a 15 20 minute drive
30:12
yeah it was good because it wasn’t it
30:14
was like this still did not pass the
30:15
starbucks test and so
30:17
you know i mean as the bird flies right
30:19
it would probably be like five minutes
30:21
but it was just the
30:22
where this was located at you had to
30:23
kind of come back around and then go up
30:24
to decatur
30:25
but yeah no that was that didn’t pass
30:28
our starbucks test
30:29
unfortunately so we had to axe that deal
30:31
so i’m sorry but you know
30:32
hopefully all future deals do pass that
30:34
yeah well hey i know we’re
30:36
running out of time so shannon if you
30:37
want to go to the last slide here you
30:38
know i just want to kind of
30:40
we can’t talk about the whole entire
30:42
process in a 30-minute show folks we’d
30:43
love to but
30:44
ultimately we we documented all of this
30:46
we took a huge deep dive in
30:48
investoracademy.net right
30:50
so we want to give our viewers all the
30:52
time about this so that’s why we put
30:53
together the course so
30:54
if anyone does want to deep dive you’re
30:56
more than welcome to go check it out
30:57
it’s really just us
30:58
brain dumping in a educational organized
31:02
more uh it’s a it’s a
31:05
thorough deep dive right we’re we’re
31:07
opening up our kimono we’re behind the
31:09
scenes
31:10
everything that you would need to know
31:11
ultimately about how to buy a deal how
31:13
to find a deal how to underwrite a deal
31:14
the whole shebang is there yeah with
31:16
slides and presentations the whole thing
31:18
so yeah
31:18
that’s our answer to hey can you guys
31:20
help with x so yeah definitely check it
31:22
out
31:22
and we really appreciate you guys
31:23
supporting us so that’s why we want to
31:24
kind of give you that 30
31:25
off absolutely right so go check that
31:27
out so then yeah so
31:29
let’s call it a wrap then right all
31:30
right
31:35
before we go right what’s coming up next
31:37
week ben tips for finding off market
31:39
deals
31:39
man shanna come on you’re making these
31:41
all complicated on us now so
31:43
no no that would that should be fun you
31:45
know on this yeah well no it’s actually
31:46
a really easier one
31:47
you don’t find off market deals stay
31:50
tuned for next week i’ll tell you guys
31:51
why
31:52
all right we’ll call it a wrap then if
31:54
anyone has more questions
31:55
going once going twice monday mondays
31:59
see you guys next week
32:00
next monday at 3 30

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