#057: How to Create Massive Legacy Wealth Through Apartment Investing

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 you’re investing with The Accelerated Investor Podcast.

So, hey, what’s going on? Welcome back to Accelerate Investor. If you’re new to us, welcome to your first podcast and first training. If you’ve been around for a while, thank you. Thank you so much for sharing this on social media and engaging with us and asking questions and leaving comments, ratings, and reviews. I just am trying to deliver it to you as much possible content in value as I can. One, because coaching is in my DNA, it’s in my blood to help others and, and to, I love to kind of, this is therapeutic for me to kind of get this information out and teach and talk about the deals that I’m doing, the relationships that I have. Then number three, it helps build a larger ecosystem for all of us to do more deals, refer deals, buy deals, invest in deals.

It’s just really an amazing platform. Accelerated Investors become an amazing platform for us to basically find more deals, find more capital. You know, more mentors, students, more relationships, have guests on the podcast has just been phenomenal. By the way, if you haven’t yet jumped into our private Facebook group, go into Facebook and look up Accelerated Investor and make sure you make a request to become one of our members. We share a ton of content inside of that Facebook group. It’s amazing. So we’d love to have you as part of the team. Go ahead and check that out. Now in today’s podcast and in today’s training, what I want to talk to you about is a massive apartment deal that we just closed. This is called Vista Mock and Vista is a 492 unit, 492 units. It’s a massive, massive deal that we just took down and bought with our partners.

So let me tell you a bit more about the deal. So this deal is in Albany, Georgia. Albany is in between Atlanta and Tallahassee, Florida. This complex is in AB market. So it’s actually two separate complexes that are about 30 minutes from each other. And the complex was owned by the same seller. So the seller, wanted to sell both complexes together. One is definitely an a-class property and the other one’s kind of a B minus property. You mix them all together and it’s an amazing opportunity. These are garden style apartments. They’re already 90% occupied. However, okay we found that the seller wanted to sell them and even though they’re 90% occupied, we found out that, you know, none of the grounds, none of the driveways, the parking lots, none of them have been paved in years. None of the landscaping’s been updated in years.

All the pools at one of the properties at the Vista property, there’s seven, sort of complexes and 21 buildings. So these buildings are in groups of three, so seven groups of three. And inside that group of three, there’s a pool. Well, none of the pools had been opened. So imagine living in the deep south where it’s hot, humid in the summer and having a pool that you walk past every day and not having your pool opened, right. And the units inside hadn’t been updated. So tremendous opportunity to update the grounds, update the exteriors, update the interiors, increase the rent, and bump up the value on a significant basis. Now the Mock property, which is more an a B minus area, even though the rents are a little bit lower and it’s a little bit more working class area, again, same opportunity.

Deferred maintenance. The interiors exteriors hadn’t been updated in years and so because we’ve already closed, we closed a 730 unit in Albany, Georgia. We closed a 407 unit down by Albany, Georgia, and Warner Robins, Georgia. We close another 200 unit down by Albany, Georgia, and because we had closed deal after deal after deal after deal, what happened was, is one of the commercial brokers, commercial agents saw that this deal was going to come online and they brought it to us before they brought it to anybody else or before they put it on the market. Now if you know anything about commercial real estate, you know that brokers love to do pocket listings. They love to not put the property on the MLS or Costar or Loopnet. They love to keep properties as a pocket listing and they like to double end the commission, they like to get both commissions.

So this agent knew that we had already owned about 15 to 1800 units in this area. That we had bought these other massive portfolios and so they brought this deal to us and of course we’re like, yeah, we want it, we’ll buy it. And so we did. And so what we did was we structured a partnership between myself and my good friend Tim Brotts and our operating partners down in Albany, which is Brian and Walter. And we were able to structure the deal where we’re all into it for $21.7 million. Purchase price is $20 million. We’re going to ah, improve mostly the exteriors and then some of the interiors for about $1.2 million. And so we’re going to be all in for about $21.7 $21.8 million.

So what we did was we actually presented this deal, the purchase contract to a lender, and the lender said, look, these buildings are already super stable so we can go right into permanent financing agency financing, non-recourse right non-recourse meaning we’re not personally signing for it. We’re not personally guaranteeing it non-recourse for $17 million. All right, so we’re able to secure a loan for $17 million. We need $21.5 million. So me and my business partners, Tim Brotts and Glenn, we get busy recruiting capital and raising the money for it. We’d go to everybody that we already have existing relationships with and we put together a 506 B securities exemption. And we already have tons of relationships with people who want to invest with us and people who have invested in our deals in the past, we hold a webinar and a boom within two or three days, we raised $4.5 million for the down payment and the equity,

When we look at this particular deal, what happened is that the net operating income after it’s stabilized is going to go way up, okay? And that’s going to increase the value. You know that through apartments and commercial deals, everything is based off of net operating income. How much income does the building generate? So in this case, this building is going to, once it’s stabilized, we increased the rent, stabilize everything, and finish off the last 5% or 8% of occupancy. It’s going to generate almost $2.3 million of net operating income. And then if you multiply that  timesabout a six cap, right? It’s actually you divide by 0.06. All right? So if you’re listening to this and you want to grab your calculator, do that. Take $2.283 million, $2.283 million and divide by 0.06 or 0.065 that’s based on a cap rate.

The cap rate is a basically a rate of return. When banks evaluate commercial buildings and they appraise them, they appraise them based off of a certain return on investment. So if you’re going to get a 6% or a 6% and a half or a 7% return on investment, that’s also known as a cap rate. So the bank basically assigns a cap rate to the deal and says, Hey, you know, this area, this building, this subdivision, this market gets for this kind of Class A or class B apartment is going to get about a six and a half cap. And they have data from all over the country and the commercial lenders tell us what the cap rate is, okay. We don’t just make up an arbitrary cap rate. They tell us. So based on $2.283 million, that puts the value of the buildings at $35 million. So we’re all in for $21.5 million in the future.

Value is $35 million box, right? Huge opportunity. So now the question becomes, well like what’s the exit strategy? What’s the plan with investors? How is it structured? Well, because we already got $17 million of permanent financing, 30 year amortization, 12 year balloon and we have that first piece of financing already in the deal at $17 million. What we want to do is structure it where we can get all the investors, the equity investors want to get their principal back out of the deal okay. We don’t want to sit on it for 5, 7, 10 years. That’s a traditional syndication where equity investors are in the deal for a long time. There what’s known as a limited partner, the limited partners, their equity, their capital, their principal is stuck in that deal for a long, long time. What we want to do is refinance the deal and pull all those investors back out of the deal, give them all their principal back plus their preferred return, and then leave them in the deal in perpetuity with no money in the deal, okay.

So in this particular deal, because we already had a permanent loan on it with Fannie Mae at 17 million, we’ve already had an agreement with the commercial lender that we can just add a $7 million supplemental loan or essentially a second mortgage, and when the building is stabilized or $35 million, they’re going to look at basically a 70% total loan to value. So again, if you multiply $35 million times 0.7 you’re going to see that we can put about $24 million, $25 million of total debt on the property. We’ve already got $17 million. So now we’re just going to add a supplemental loan or a second low mortgage loan for another $7 million, okay? That’s $7 million. Now allows us to pull all the equity investors back out of the deal, give them all their principal back and produces about $3 to $4 million of cash out refi proceeds. That $3 to $4, $5 million of cash out refi proceeds is non-taxable loan proceeds.

So now all the equity investors, me, the other general partners, Tim, Walter, Brian plus all the limited partners that all own a piece of this deal, everybody’s going to get a piece of the cash out refi proceeds, which is an amazing windfall of money. Three four, $5 million cash out and it’s tax free loan proceeds, right? Amazing, amazing deal structure. So the same lender has already told us, hey, we’re all in for $17 million you know, based on if you guys get to the proforma and you get to the $2.283 million of net operating income, the property is going to be worth $35 million bucks and we’ll do a sup supplemental loan for $7 million. That’s going to provide about $2.8 million of cash out refi proceeds.

Now, the beautiful thing about this is now our investors, our passive investors will have all their principal back and then they’re going to maintain equity ownership in the deal in perpetuity with no money in it, which means they get to participate in appreciation, depreciation, principal pay down, they get the, you know, if we’re doing any kind of cost segregation and they get the, write that off on their taxes.

All these different things are amazing opportunities and they have no more money left in the deal, okay. Now for me and my friends and my partners in this transaction, it gives us a tremendous amount of passive cashflow. It gives us huge tax advantages. Also leaves us with about $10 million of profits or equity in the deal. It builds our balance sheet and makes us more bankable. And our longterm plan is building legacy wealth. So 10 years from now, right? The new loan that we have on, it’s going to be $24 million, but we’re going to start paying that down. So 10 years from now, that $24 million is going to look a little more like $20 million. So we’re going to owe $20 million in about 10 years and it’s going to be worth $35 million, right? Then 10 years later, we’re only going to owe $10 million, but it’s going to be worth $35 million.

And then after 30 years, the building’s paid off and it’s worth $35 million plus. It’s a true, massive longterm legacy wealth builder. So now, how can you participate in deals like these? Well, we’re always looking for the operators. We’re looking for people to bring us deals, we’re looking for brokers to bring us deals. We’re looking for Class A and class B properties. We’re typically looking for properties that are two and two to two and a half million dollars or more properties that are at least, you know, 50 to 80 doors or more properties that are value add, that have either, you know, bad management that have deferred maintenance, that have low rents that we can improve. What we bring to the table is we bring balance sheets. We bring experience, we bring property management, we can sponsor a loan, we can recruit capital for a deal.

We bring mentorship, we bring all that stuff and what we’re basically looking for is more deal flow, more joint venture partners to do deals with. That’s it. This is a super exciting deal and after we closed on the Vista Mock complexes, this takes our total apartment portfolio now up to 2208 units, which is just really, really exciting stuff and we’ve been able to accumulate those in the last 10 months. So were able to build a huge, you know, build our balance sheets and our equity and our cashflow all in less than one year. If you have any comments, questions, if you want to joint venture with us, bring us deals, partner with us on a future deal just reach out to us. We’ll put the, you know, contact information in the show notes and we look forward to doing more deals with you in the future. All right, thanks so much for being here. We’d love to JV with you on a future deal.



You’ve been listening to Josh Cantwell and the Accelerated Investor Podcast. Leave a comment on our iTunes channel and let us know what you want to learn next, or who you’d like Josh to interview. While you’re there, give us some five star rating and make sure to subscribe so you can be the first to hear new episodes. Follow Josh Cantwell and his companies, the Strategic Real Estate Coach and Freeland Ventures on all social media platforms now and stay up to date on new training and investment opportunities to start your journey toward the lifestyle you’ve always dreamed of. Apply for coaching at JoshCantwellCoaching.com.

 

Understanding how other real estate investors structure their property deals – especially large-scale deals like apartment complexes – is a valuable way to build your real estate knowledge and formulate a strategy for your unique business goals and market.

Recently, Josh and his team closed a sweet deal that included two apartment complexes (the Vista apartments and the Mock apartments) located about 30 minutes apart in Albany, Georgia. Between the two properties, the complexes were made up of 492 units and were nearly 90% occupied. 

In this podcast, Josh shares every detail you want to know: how he found the Vista-Mock properties, how he structured the financing, how much he plans to put into the properties, and why he sees these properties as long-term legacy wealth builders

Even if apartment investing isn’t your main strategy, it can be immensely beneficial to hear more about the journeys of other investors – and how they’re building sustainable and profitable business models. You never know… you may even want to joint-venture on Josh’s next big deal.  

What’s Inside:

  • How Josh found and snatched up these properties before they were even listed
  • How Josh and his business partner Tim Bratz structured most of the financing with a commercial lender 
  • How Josh’s team raised the remaining capital via private investors
  • How a second mortgage and cash-out refi came into play (and why these were important for the private investors)
  • The profits/equity that Josh and his partners will experience from this deal 
  • How YOU can joint-venture with Josh on future deals such as these 

Mentioned in this episode​

WordPress Video Lightbox