Welcome to The Accelerated Investor Podcast with Josh Cantwell, if you love entrepreneurship and investing in real estate then you are in the right place. Josh is the CEO of Freeland Ventures Real Estate Private Equity and has personally invested in well over 500 properties all across the country. He’s also made hundreds of private lender loans and owns over 1,000 units of apartments. Josh is an expert at raising private money for deals and he prides himself on never having had a boss in his entire adult life. Josh and his team also mentor investors and entrepreneurs from all over the world. He doesn’t dream about doing deals, he actually does them and so do his listeners and students. Now sit back, listen, learn, and accelerate your business, your life, and your investing with The Accelerated Investor Podcast.
So, hey, guys, welcome back to Accelerated Investor. In this podcast and YouTube video, I want to talk through a recent deal that we just bought. We call it 16 Akers. And this is an apartment case study. And what I want to teach you in this podcast and in this case study is I’m going to show you, number one, how we paid all cash for a nine hundred and fifty thousand dollar apartment that we got for five hundred and forty thousand. Number one. Number two, I’m going to show you why we bought this building, even though it was almost totally sight unseen. And number three, why we bought it, even though we got almost no due diligence from the seller. I hope you enjoy this episode of Accelerated Investor.
All right, so, guys, welcome back, this is the 16 Akers case study. Let me bump through this. Let me give you some context here. We have a local wholesaler in our town who really does a good job of finding multifamily properties, duplexes, quads. They are now really expanding into small balance commercial apartments. So 20 unit buildings, 40 unit building, 60 unit buildings. You know, anything that’s really over five million you’re going to find is probably going to be listed with a commercial broker like a Colliers International, a Marcus and Millichap, a CBRE, something like that. But the smaller stuff under five million, you’re going to find that there’s some really good wholesalers who are really good at finding those types of properties.
And so that’s exactly what happened here. The property address is sixty-five to seventy-five Akers drive in Akron, Ohio. If you want to look it up on Google Earth, that’s one of my favorite tools. Look it up on Google Earth. You can actually see the building and the surrounding area. You’re going to see that this building, one of the things we liked about it, it was buried inside of a residential community, it’s got houses all around it. There just happens to be the 16-unit apartment building right on a residential street. When we showed up, we talked to the wholesaler and said, look, you know, we’re interested in the building. They were asking six hundred fifty thousand. They had offers for six hundred thousand, six and a quarter. But all of those offers required financing.
We told them we would pay all cash. What’s the lowest that you could go if we paid all cash and we were able to secure it for five hundred and forty thousand dollars, all cash? Now, it wasn’t my cash. It was actually private investors cash that came in. We had three private investors that invested in the deal and they are getting a 10 percent preferred return on their money. The interesting thing, though, is we knew the wholesaler was going to make a very large assignment fee. So the wholesaler is very upfront with us because he’s a friend of ours. Guess how much money the wholesaler made? Ninety-two thousand dollars. That’s right. He was able to strike a purchase price with the seller for four hundred and forty-eight thousand, we bought the property for five hundred or forty thousand, all cash, again, almost sight unseen. And on the closing statement, he made a ninety-two-thousand-dollar wholesale and assignment fee. Right. Holy smokes. Guy made a ton of money.
But why were we willing to buy it? Well, let me tell you about the details. Well, the landlord. The seller was kind of tired, ready to slow down 80 years old, the building had a 90 percent occupancy history of at least three years, if not five years or more, of operating at over 90 percent occupancy. The rents are about one hundred and fifty dollars below market value. The rents are currently anywhere between four hundred and eighty dollars to seven hundred dollars. But the thing is, this guy, he’s letting his customers, letting his residents pay all different amounts of money like some tenants. I’m looking at the rent roll on my other screen. Some of the tenants paid one hundred eighty dollars and then three hundred sixty dollars and then three hundred dollars.
Another tenant paid two hundred dollars and then two hundred dollars and then two hundred dollars. Another tenant paid two hundred eighty six dollars, then four hundred and twenty dollars and then five hundred and twenty three dollars all in the same month. So the rents are all over the board. This guy has been very, you know, I would say landlord friendly, letting his tenants pay whatever they want to. So for us and we looked at the building, we looked at the value, we thought, OK, if we have investors come in and pay all cash, what price can we buy it and simply stabilize the rents at a uniform price? And then using our cap rate, be able to refinance it and basically get all the investors out of the deal in the next 12 to 18 months.
So currently the rents are between four hundred eighty dollars and seven hundred dollars. There’s no consistency. So we thought, look, a lot of these people are already paying five seventy five, six hundred, six fifty. We went into two tools that we use.
One of the tools, actually three tools. One is apartment Stockham. So we look up the comparable properties on apartments.com and seeing what they’re charging and we look at what’s the rent per square foot because every square footage is different. You might have a two bedroom that’s six hundred square feet. We have another two bedroom. That’s nine hundred square feet. Another two bedroom. That’s twelve hundred square feet. Those are not comparable. The equalizer is what’s the rent per square foot.
OK, just like housing. If you look at it, selling a house, flipping a house, you look at the price per square foot and we also so that’s the first tool apartments, dotcom. The second tool is rental meter. I would highly recommend you just pay for a rental meter, a subscription. You get these reports, it gives you the averages of one bed to bed, three bed forbad. There is a sample of the listings in a map, and then there’s each of the comps and what they’re charging for rent. And so we looked at those. We specifically looked at this building, 16 acres, we call it 16 acres is it’s 16 units we looked at, OK, what’s the average rent per square foot? And we looked at the average rent for a two bedroom and the average rent for a two bedroom is six hundred and sixty-four dollars a month. That’s the average.
The median is six hundred fifty dollars per month. And then there’s a range of between twenty-five, the twenty fifth percentile to the seventy fifth percentile which means and the low end to the high end. What’s the rents there. Anywhere from between five hundred eighty six dollars a month. Up to seven hundred and forty-two dollars a month. OK. And so. There is a essentially a deviation of one hundred and sixteen dollars either way, OK? And so we looked at some of the comps and we said, wow, you know, there’s no reason why we can’t get seven hundred dollars a month and if we could get seven hundred dollars a month.
OK, multiply that times 12 months, times 16 units, that’s one hundred and thirty-four thousand four hundred dollars in gross income. OK, then. We just took basically a about a 40 percent to 50 percent expense ratio. It’s probably going to be a lot less than that because on small buildings, you usually have lower expenses. But if our net operating income is around 70 to seventy-five thousand dollars a year, you divide that by an eight cap because this is a small building. It’s in Akron, Ohio. We use an eight cap or an eight percent return using Akamp. So if you take seventy five thousand divided by zero point zero eight, that gives us a value of between nine hundred thousand to nine hundred and fifty thousand dollars.
OK, so our strategy became, can we just simply standardize the rents, can we simply bump the rents, standardize the rents and get the rents up to seven hundred dollars per month per unit? And the answer is yes, we felt pretty comfortable with that. OK, so the first tool I mentioned was apartments dotcom. The second two I mentioned was rental meter. The third tool is Costar. Now, Costar is not cheap. We pay about eighteen hundred dollars a month for Costar and that’s for a subscription just for Ohio.
And we have three users, but Costar owns apartments.com. Costar owns LoopNet, Costar owns all these different services. And it’s one of the best tools that you can use for evaluating apartments, multifamily commercial building, self-storage, anything, commercial retail office, mobile home parks, etc.
So we thought to ourselves, OK, well, now if we know we can get a value of between nine hundred to nine fifty, let’s assume that a bank is only going to give us 70 percent financing, 70 percent refinance financing. We stabilize the building over the next 12 to 18 months. We can get 70 percent loan to value. We might be able to get seventy five percent might be able to get 80 percent, who knows with covid how it’s going to affect banking. But let’s assume it’s 70 percent, 70 percent is going to give us a new loan of around six hundred fifty thousand dollars.
Remember, we bought it for 540. It’s going to be worth nine to nine fifty will slap a new loan on it in about 12 to 18 months of about 650, we’ve got about one hundred thousand dollars in cash out refinance proceeds and we still got about three hundred thousand dollars of equity.
OK, so all of those for all those reasons, this was an absolute home run deal for us. Now, one of the things we had to fight through on it was the fact that this guy was 80 something years old and he kept really terrible records. So I’m literally looking on my other screen here at the rents. It’s literally on a yellow pad. Unit one pays five seventy-five. The due date is the 8th of the month and the lease is in February unit to five seventy-five due on the twenty second of the month, their month-to-month unit three, they’re paying five fifty. The due date is the first of the month. They’re paying month to month unit four or five. Seventy-five due on the 13th, the next year due on the 20th, the next year to do on the 1st. The next unit due on the 11th, the 8th, the fourth, the 15th, the 20th. Every single due date on the leases is different. But here’s what we thought. There’s only one, two, three, four, five. Six of the 16 units that are on a lease. And even in the middle of covid, you can evict for simply the fact that you did not renew their lease.
So 10 of the 16 units are month to month. So since they’re month to month, we can simply not renew their lease. If they don’t move out, we can evict them. Then we can improve the unit a little bit and we can lease the units out for seven hundred dollars a month, OK. And so our thought process was even if we don’t have all the leases, even if we don’t have all the proof, even if we don’t have all the rent rolls, even if we don’t have all this stuff, because the seller was very lax in keeping all their due diligence, the numbers still penciled out. Matter of fact, this building is still even if we can only get six fifty a month.
OK, let’s do the math real quick. So if you take out a calculator take six fifty a month times, 12 times 16 units, that’s a hundred and twenty four thousand eight hundred dollars. Multiply that times point six. OK, that leaves a 40 percent management fee. So one hundred twenty four thousand six hundred. Even times point five students of 50 percent management fee, that’s sixty-two thousand three hundred dollars a year of net operating income divide that by an eight cap, still puts the building value close to eight hundred thousand dollars. And we only paid five forty for it.
It doesn’t need much and improvements and only needs 25 grand, 50 grand, small amount, you know, like twenty three thousand dollars a unit, and that’s if we want to upgrade the units at all. Most of the units we walked were in great shape. So even if we can only bump the rents to 650 a unit, it’s absolutely a great little deal.
So sometimes you’ve got to just do the deal, even when you don’t have all your due diligence, even when you don’t have all the proof we knew. Look, the opportunity was even if these tenants played the covid game, the covid eviction game, and they said, oh, I can’t pay the rent because of covid, they’re still month to month. We can still evict them for not renewing their lease.
We evict 10 out of the 16 people, we wait for the other six. And then we just bumped the rents, improve the units, bump the rents, and we’re going to get to seven hundred dollars six fifty to seven fifty per month. Seven hundred on average. And on average, it’s seven hundred dollars, we’ve got almost a million-dollar building and we paid five forty for it. And the wholesaler made ninety-two thousand dollars.
So what are their takeaways from this? This short little training, this short little podcast? First of all, is one, make sure you’re talking to your local wholesalers about small commercial apartment buildings and rentals. Six units, 16 units. Twenty-five units, 50-unit deals. Wholesalers are doing those kinds of deals. Make sure that you talk to your wholesalers about those properties number to be comfortable paying a wholesaler a pretty big assignment fee on this deal. If you take ninety-two thousand dollars and divide it by 16 units, they got aboutalmost a 6000-dollar assignment fee per unit. Per unit, ninety-two thousand divided by 16 units, five thousand seven hundred fifty dollars in total fees per unit, ninety-two thousand total.
So one, make sure you talk to your wholesalers about their deal flow number to make sure you check apartments, dotcom. Rental meter, dotcom and costar for your comps, you’re underwriting reports, due diligence, also an additional resource that I’d like to use as Google Earth, Google Earth. I was actually on this last night with my kids. And by using Google Earth, you can actually plug in any building and you’ll be able to see. Right. You’ll be able to see that building from a total 3D perspective. It’s amazing. I’m surprised more people don’t use Google Earth when they’re underwriting deals. OK, so you can go on to Google Earth now and look up. Sixty-five Akers Avenue in Akron, Ohio, and you can see the building that I just bought.
Go ahead. Look it up. Go to Google Earth and you can see sixty-five Akers Avenue and you’ll see it’s in a working-class residential neighborhood. Plus there’s like a McDonald’s, there’s an Arby’s, there’s a couple of churches. There’s close to the freeway. You could see all that right from Google Earth. It’s right around the corner from there’s a rail yard. There’s also the what you call it the headquarters of Goodyear. Goodyear Tire, which was founded in Akron, Ohio. OK, so lots of good stuff there around that property for us to be excited about.
Also not far from the Akron Fulton International Airport. OK, not far from that that airport. So, guys, that’s a great tool, Google Earth. And also, don’t be afraid to do deals even when you don’t have all your due diligence, but you have to have and be most comfortable with your what I would say is your worst-case scenario. So our worst case scenario we thought is, look, what if none of these leases are valid? What if none of these people pay?
Then we thought, well, ten out of the sixteen units are month to month. We kick people out for lack of renewing their lease, we kick them out and we improve the building and we lease it out. What I’m worried about is long term investments, not short-term problems, but long term investments. And so our worst case scenario was, look, we’re not going to have a lot of work to do here. We walked all the units. We saw that the units did not need a lot of work. They were in move ready condition. Maybe we a swap out some carpet for some LVP. Maybe we swap out a couple of countertops.
But otherwise it was they were all in great condition. And we also saw a building that had very little expense. We could probably do this building with a 40 percent expense ratio, which means our net operating income is much higher. So because we were comfortable with worst case scenario, we bought it.
So I don’t see now here’s what’s actually happened in the first month. Out of the 16 units, the building 100 percent occupied in the first month, which was November of 2020, only six of the tenants paid their rent. Six out of 16 paid the rent.
So guess what happened if a three day, three day notices went out? We aggressively started to enforce the month-to-month situation. Tell people if you don’t pay, we’re going to kick you out. We’re just simply not going to renew your lease and you’re going to have to move out and all of a sudden everybody started paying. You see, the last piece of advice I’ll give you is any time you take over a building of any kind could be a duplex, a quad or a large, large apartment building.
We’ve done all those is that tenants are absolutely going to push buttons to see what they can get away with, going to push buttons to see what they can get away with. When you take over a building, they’re going to not pay, they’re going to not answer their phone, they’re not going to sign up on your online portal, it’s going to be 60 to 90 days until those tenants realize that you mean business, that you are serious about managing a building and serious about managing in a good way and taking care of your tenants and forcing the three-day enforcing late fees and forcing your kick outs. And they will come around and they’ll take it very seriously.
OK, so guys, there you have it. That’s 16 Akers. Check it out. On Google Earth, the address is sixty-five Akers Avenue spelled A-K-E-R-S Avenue in Akron, Ohio. Again, purchase price five forty paid the wholesaler ninety-two thousand. We budget about fifty thousand for renovation costs. We probably won’t even spend half of that. We did pay ourselves about a twenty-five thousand dollars acquisition fee when we bought the building. So we did get paid up front. And ultimately, just by simply stabilizing the rents at seven hundred dollars, we’ve got a nine hundred and fifty thousand dollar building at an eight cap and we’re all in for under six hundred thousand dollars.
So it’s not a grand slam, it’s not even a home run. It’s a little single, but it adds about three hundred fifty thousand dollars to our balance sheet and adds about four or four thousand dollars per month of net free cash flow. And I was able to do the deal with none of my own cash, none of my own credit. And without even having to go spend any money on marketing because I paid the wholesaler how to find that deal, I hope. I hope you enjoyed this podcast and hope you enjoyed this training. If you did, please go into whatever you catch your podcasts, YouTube, iTunes, leave us a rating and a review. Tell us how we’re doing. Let me know if you like it. You can also if you if you enjoyed it, you could leave us a review right on our website, which is AcceleratedInvestor.com. Thank you so much for joining me today. And we’ll talk to you soon on the next podcast. Take care.
So there you have it, guys. I hope you enjoyed this case study of 16 Akers. Again, check out the address. Sixty-five Akers Avenue, Akron, Ohio. Check it out on Google Earth. I hope you enjoyed it. If you did, please leave us a rating and review. We want to get the word out to other people about the Accelerated Investor podcast. Share this wherever you can all over social media, whether it’s Instagram, whether it’s Facebook, whether it’s Twitter, share it with other people. If you have somebody who could be a great guest for me on this podcast, a real estate investor, or if you’re a multifamily investor focused on raising capital and multifamily, reach out to us. Let us know. Go to our website, click the contact us button and reach out to us to become a guest on the Accelerated Investor podcast. I hope you enjoyed it today. I really always enjoy sharing these with you. Have a great rest of your day. We’ll talk to you soon.
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Sometimes a great little property will come from an unexpected source. Most commercial properties are sold using the larger brokerage firms, but every now and then a smaller 10- or 12-unit building can be found with wholesalers. Today I’m going to run down the numbers of my newest property that we’re calling 16 Akers located in Akron, Ohio.
When the wholesaler brought us the property, we noticed right away that the rents were $150 below market value, and the complex had been 90% occupied for the last three years. Simply purchasing the property and stabilizing the rents could bring us an immediate profit, so we pursued the deal.
Without visiting the property, I was able to get a good idea of the neighborhood and the general lay of the land. I share how I use both paid and unpaid tools to get comps for this property, including:
- Google Earth
Six of the sixteen units are on a lease, but ten of them are on a month-to-month agreement. And when we got the official records from the 80-year-old landlord, we realized that he’d been keeping track of rents paid on a yellow legal pad. The records were even more incomplete than we’d realized, with some tenants paying on the 1st of the month, and others paying on the 5th or the 10th. The eviction rules around month-to-month agreements will be to our advantage as we bring rents up to the market rate.
Don’t count out a smaller property like this as you build your portfolio. Without much effort on our parts, we’ve nearly doubled our initial investment.
- How to figure out the price per square foot to adjust the rent prices.
- Don’t discount purchasing small units; talk to your local wholesalers who can be a great source for these multifamily properties.
- How we paid all cash for a $950,000 apartment that we paid $540,000 for it.