#183: My First $100+ Million Deal

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So, hey, welcome back to Accelerated Investor, hey, I’m so excited that you would join me again. And by the way, don’t forget to subscribe whether on YouTube or iTunes or wherever you get your podcasts and videos makes you subscribe to Accelerated Real Estate Investor. So you never miss another episode in this episode of Multifamily Inc, which is the sole focus that I do to give you an in-depth look on my personal investment business. I want to tell you about our very new five hundred- and fifty-two-unit apartment building that we just bought. We just closed on in Houston, Texas. It is called Waterford Grove. It is in the Houston market. It’s in the spring branch submarket of Houston. 

And we just closed on this deal on Tuesday night for seventy million dollars. Seven seventy million with an M. It’s five hundred fifty two units Value-Add apartment building, but seventy million dollars. It’s the largest transaction I’ve ever done, to be specific, seventy point seven seven, six million dollars. The equity that we required that we raised was eight million dollars the hold time on this transaction is between three to five years. And we paid our passive investors a nine percent preferred return. Plus they got about point three percent equity for each one hundred thousand dollars that they invested. So we ended up giving up about twenty five percent of the deal to limited partners. We retained seventy five percent of the deal for ourselves. And we are a big ownership piece of the deal, which is exciting. 

My group, we underwrote the deal with the property management companies, underwrote the CapEx with our CapEx partner who’s doing the general construction. About three point five million of improvements through CapEx raised about two million dollars. And we’re excited to be one of the general partners in this deal. The interesting thing about this property is that it’s five hundred fifty-two units when we’re buying it. But part of the CapEx improvement plan with this is to actually take sixty-six of the three bedrooms and actually slice them in half and convert them into one bedroom, one baths. 

So it takes sixty six of the three bedrooms. We’re actually going to be able to keep sixty-six, one bedroom, one bath and then add another sixty six, one bedroom, one bath. These three-bedroom units are about fifteen hundred, six hundred square feet. They’re huge and we love one bed, one bath and two bed, one bath units. Those are the easiest to run, the fastest to rent out. They rent out for the highest price per square foot. And so we noticed that the three bedrooms we’re only renting out and about 90 cents a square foot. By going to one bedroom, one bath, we’re able to rent them out for about a dollar twenty-five to a dollar 30 per square foot. And end up adding sixty-six additional units or converting sixty-six three bedrooms into one hundred and thirty-twoone bedroom units. That will allow us to really jack up the net operating income. So we’re buying it for 70 million, Olin for about seventy eight million. The net operating income when we purchase the property is about seven point eight million. 

Our goal is to grow that. I’m sorry the gross operating income is seven point eight million. Our net operating income about four point five million. Our goal is to grow both of those by about 30 percent. So to grow the gross operating income, the effective gross income to ten point six million over the next three to five years, and then grow the net operating income to six point one million in the next three years and at a five point seven five cap rate puts the value of the building at one hundred and six million dollars. So when you create your bucket list, right. Of all the things that you want to do in life, one of them is to buy a hundred million dollar deal. 

And so I’m so excited that I can check that now off of my bucket list. It was a deal that we got involved in very late in the game because there was some missing capital that needed to be raised. There was some additional sponsorship that need to be added to the balance sheet and additional expertise that needed to be brought in regarding deal structure. And so we were able to check all those boxes. We were able to partner with an amazing group of partners. So Ian Djuric from the Jerk Family Office is a partner who brought in about four and a half million dollars of capital to broths. You guys know that I’ve partnered with on numerous multifamily apartment deals, was able to come in and raise a couple of million dollars and sponsor the loan or using Asset Living, which is one of the top 15 property managers in the country that managed multifamily apartments. 

They actually have an office right in Houston, right in Spring Branch about a mile away from this subject property. So we’re excited to have Asset Living actually doing the property management on a day to day basis. And also our friend Georgia Brochu from J and T Construction is doing the three and a half million dollars of CapEx, including those sixty six three bedroom conversions from three bedrooms to one bed, one baths. So we were able to put together an amazing kind of sponsorship group, partnership group to check all the boxes for liquidity, for balance sheet, for experience. This adding five hundred and fifty-two units to our portfolio now puts us over three thousand five hundred total units or more. And we’re really excited to expand into the Houston market. 

One of the things I loved about this deal was that the conversion, the we’re able to force the appreciation for the first two or three years by adding these 66 units. So we’re able to force the appreciation in a very predictable way. Then also, over the next five years, Houston is scheduled by many different news outlets and many different research firms that Houston will be one of the top one or two or three growth markets over the next five years for population migration, for jobs, for energy. It’s in the Sun Belt. People love the area. And so we’re really excited about the Houston market. 

Some of the challenges that we faced was obviously back in February and March, there were all the ice storms that came in. So we’re right in the middle of closing this deal, right in the middle of the underwriting and getting the loan approved. And this ice storm came and there was hail damage. There was ice damage. And so when we did our walk through right before closing, there was a lot of those damages that we needed to get our arms around. We weren’t going to retrade the deal. We weren’t going to get rid of it or lose it. But we needed to make sure that we were very comfortable in, you know, what damage was done so we could factor that into the capital improvements. But this place is like it’s like a resort. There’s three pools, there’s a gym, there’s multiple playgrounds for the kids. 

And one of the things we really love about the plan for the residents is that we’re actually going to be adding a soccer field. So there’s actually plenty of extra land with the property. And we’re actually going to be adding a full soccer field for the residents so that the kids have a place to play, that they’re excited about where they live, that they don’t want to leave. And, you know, the really, really, really fired up about, you know, I want to live in this place. This is my place where I live. This is my residency. And I’m excited about where I’m staying. You know, we don’t want people to move out and think like, oh, it’s just a nice place to stay, but there’s no amenities. So we want to have lots of amenities as far as the pool and the soccer field, which is fantastic. So we’re really looking forward to that. Was also excited to partner with Shane Carter, who was the primary kind of sponsor of the deal. Shane found the deal brought in the a lot of the rest of the partners a lot of guys have done deals with in the past, including Tim, his attorney, FadiDemitry, and George Obrayu, which is great. So these are guys have done deals with in the past. We’ve built an amazing big portfolio together. 

So the question here is, what’s the lesson that all of you can learn from a hundred million dollar deal? Right. This is not a deal, even with my experience, even with my horsepower, this is not a deal that I could do alone. And so this is a deal that all of us needed each other. Shane and Tim Fati, me, my partner Glen, all need each other. Everybody need to do their part. And putting together all the legal documents, the letter of intent, the purchase agreement, the management agreements, the loan documents that’s done by the attorneys, the property management vetting out the property manager, asset living, bringing in the capital stack, which is in Tim ourselves and our funding partner, which was Electra capital. So everybody’s there’s no way a deal like this could be done by just one person because there’s just so many moving parts. 

So the last ten days was absolutely brutal on the phone with limited partners, with general partners, with insurance companies, lending partners, making sure this deal comes together. And so what this really comes down to is trust. OK, every single person on the team had a role, whether it was sponsoring the loan or it was raising money, whether it was the legal side of things, whether it was property management, whether it was capital improvements, capex. And so this group that I’ve invested with in numerous deals were general partner. We sponsor the deal. We raise money, we sponsor loans together. What it really comes down to is that I know. 

That these guys that I’m partnering with are predictable. They’re trustworthy, and how do you build trust? It’s by being predictable. OK, there’s another podcast that you’re going to you’re going to hear with that I recorded with Jerome Myers and this really reminds me of my interview with Jerome. So check that out on the Accelerated Investor podcast and on our YouTube channel, my interview with Jerome. But Jerome talks about this, that the pyramid, the triangle of know, like and trust, it’s really more of a funnel. 

It’s know someone. So I know them. I know who they are. I could put a face with a name. Step number two is I like them. I like their demeanor. I like their personality. I like what they stand for. I like their values. And then do I trust them? And trust comes from when somebody shows up and says, this is who I am. This is what I stand for. This is what I’m going to do. And then they do it. They become more predictable, the more predictable somebody is, the more trustworthy they become. 

So I know some of my friends are totally wild, like their total party animals. They’re crazy, but they always show up the same way. They’re always the same whether we’re golfing together, having beers together, going out. Some of these guys are still single, whether they’re talking to girls, you know, whatever it is, they’re predictable. 

So even they’re a little wild. And I’m more of a conservative family man. I trust them because I know how they’re going to show up. You know how they’re going to act, I know what they’re going to do, so I trust them because I feel a sense of security around them. I don’t know that I would give them ten thousand dollars because they probably gamble it away or have fun with them, party with it. But I know when I’m around them, I know what to expect. Right. And that’s really when we think about, you know, like and trust comes from trust comes from predictability. I can trust this person because I know what they stand for. I know where they’re coming from. And every single time I’m around them, they show up the same way. And so this group that closes one hundred million dollar deal, that’s exactly why we do business with them. 

And that’s why we’ve done six or eight different apartment deals, maybe ten apartment deals with them. Now, is it why they lean on us and why we lean on them and why we all work together so well is because is because of this. Predictability, this level of trust. So my question for you is. Is who are you, what do you stand for? Right, when you show up, you show up the same way every time, can people trust you because you’re predictable? Those are the type of things it takes to pull together a hundred-million-dollar deal.

OK, so I’ve enjoyed this quick solo cast on our multifamily ink, kind of subchannel around this one hundred million dollar deal. You can check it out online, you can research it, you can look it up. It’s called Waterford Grove in Houston, Texas, in the spring branch submarket. And again, if you enjoyed this quick solo cast, make sure you leave us reading a review, a comment, let us know. Share this all-over social media and make sure you subscribe to both iTunes and YouTube, the accelerated real estate investor podcast, to make sure you never miss another episode. All right. We’ll talk to you soon. Take care. 

You were just listening to the Accelerated Investor podcast with Josh Cantwell. If you enjoyed this episode and learned something new, help us build the A.I. community by leaving a review and five-star rating on our iTunes podcast channel. Also, don’t forget to subscribe so you never miss another episode. To see passive investing opportunities, visit FreelandVentures.com/passive. To start your journey toward the lifestyle you’ve always dreamed of with multifamily apartments, apply for one-on-one coaching with Josh at www.JoshCantwellCoaching.com.

I am so excited about my latest purchase that just closed because I’ll finally be able to cross an item off my bucket list. Not only is this the largest purchase I’ve ever made, but there is so much massive value-add in this building that I’ll be able to increase the gross operating income and the net operating income by 30%, which will place the value of the property at $106 million. That’s another personal goal met right there.

On this Multifamily Inc. episode, I’m going to breakdown the numbers on this 552-unit property in the Spring Branch market in Houston, Texas:

  • We raised $8 million in private money
  • Our investors are going to receive a 9% preferred rate of return
  • 3-5 years hold time
  • 0.3% equity for private investors for each $100k they invested

One of the reasons I was so excited about this property is the huge potential in the renovations. Part of our CapEx improvement plan is to take 66 of the 3 bedroom units, slice them in half, and create one bedroom one bathroom units. We noticed that 3 bedroom units rent out for 90 cents a square foot, but one bedrooms rent out for $1.25-1.30 per square foot. So the CapEx will add 66 additional units that are more expensive per square foot. And that will let us really jack up the net operating income.

This was not a deal that I could have done alone. I’ve built a team around me that I know can deliver on their promises, and it’s made purchasing larger properties so much easier. If you have a property that meets my criteria, I’d love to talk to you.

What’s Inside:

  • One of the things I loved about this deal is that we’re forcing appreciation in a predictable way, plus we’re investing in a market with huge potential for growth.
  • How I find partners with the Know, Like & Trust formula.
  • Why I’m going big and converting three bedroom apartments to one bedroom apartments on this property.
  • Recent ice damage from the February and March storms in Houston meant that we had to make more room in our CapEx budget for repairs.

Mentioned in this episode​

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