The Fastest Way To Build A Six Or Even… Seven Figure Real Estate EMPIRE!
If you’ve been following the podcast over the past year or so, you might remember when we bought the property called 54 Niles. This is a 54 unit building that used to be part of an assisted living facility. I’m very excited to say that we recently sold the property for a profit of over $1.1 million!
So today, I’m going to break down how we did it. You’ll learn how we acquired the property off-market, the critical improvements that we made, how we got it to 100% occupancy, and walked away with over a million in profit.
If you’re a new real estate investor or looking to add commercial multifamily to your portfolio, this is a perfect case study on the right way to get your feet wet and turn a profit along the way.
Key Takeaways with Josh Cantwell
- How we acquired 54 Niles off-market, spent about $120,000 on improvements, and achieved 100% occupancy.
- What we did to get a great offer on the property despite rising interest rates.
- The eight different profit centers in multifamily properties–and the specific ways we profited from 54 Niles.
- Why multifamily properties stay cash flow positive even as you rehab and improve them.
- Why cash flowing and flipping multifamily properties is such a great way to enter this space–especially if you have prior experience with single family.
Josh Cantwell Tweetables
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Josh Cantwell: So, hey there. Welcome back to Accelerated Investor. Hey, this is Josh, and I’m really excited today to share with you the results of one of our most recent apartment acquisitions that we took full cycle, purchased, stabilized, and sold for a big profit. And in this podcast, let’s walk through the case study of 54 Niles.
54 Niles was a small 54-unit property, was brought to us off market through our relationships with some brokers that we know. The property was actually a separate parcel, part of an assisted living complex. It was actually an assisted living facility, and then a separate parcel was essentially a market-rate apartment complex that was 54 units. But because it was adjacent to an assisted living facility, it was mostly 55 and over residents. It wasn’t really sold or marketed as a 55 and over community. It wasn’t really specifically leased to 55 and over residents. However, because of its location and proximity to the assisted living facility, which was called Shepherd of the Valley, it was basically most of the residents were 55, 65, 75, 80 years old.
What happened was, is that the assisted living facility closed and it was actually rebuilt a couple of miles away. So, the assisted living facility basically went to 100% vacancy. And so, the apartment complex next door was basically sold by the owner to an investor for about $1.2 million. That investor, his name was Nick, bought the property. He owned the property for roughly a year. And he was in the process of renovating all the units, renovating the building, and he was going to keep it. Well, he decided to ultimately renovate 34 of the 54 units and then market the property to just quickly sell it. Well, he ended up selling it to us for $2.45 million.
So, my guess is Nick bought it for $1.2 million. He put about three $400,000 into the unit turns. He was into it for maybe $1.6 million with his closing costs and soft costs. And he flipped it to us for $2.4 million after paying the broker commission and the taxes. Nick probably made at least $700,000 to $800,000.
So, we buy it for $2.45 million. It has 20 of the 54 units occupied and 34 of the other units that have been fully renovated. Fully renovated. So, we buy the building for $2.45 million. We get a quick bridge loan from Lehman One. The interest rate on that loan was 5.99%. It was essentially a two-year bridge loan with two one-year extensions. So, we had four years of fixed-rate financing.
Our goal was very simple. We were just going to lease off the 34 units that Nick, the former owner, had just turned. That’s exactly what we did. We brought in a third-party property management company. They went gangbusters on leasing up the building. In the meantime, we also sent out some renewal letters to the remaining 20 residents. And as their leases came due, a lot of them started to see the progress in the buildings, started to see that we were renovating the building, upgrading the building. A number of them were seniors. They didn’t want to pay a higher rent. So, a number of them decided to move out, maybe move to apartment building down the street that was a little bit less expensive and not as updated.
So, over the next 12 months, not only do we lease up the 34 units, but then we turn 15 out of the remaining 20 units. And then we invested about $100,000, $120,000. We sealed and striped the parking lot. We did some roof repair. We did some landscaping. We upgraded the landscaping with new bushes, and we turned those 15 units. We spent about $120,000. Not a lot of money, 120,000 bucks, to renovate those 15 units and then do these other improvements that we made.
So, ultimately, we got to 100% occupancy. And when we took the building over, we were only collecting $15,000 a month in income. We bought the building for $2.45 million. Over 12 months, we then leased up the entire building. We got the income all the way up to $42,000 to $43,000 per month, which was our pro forma, which was our target. And then we decided to put the property on the market and all the buildings fully stabilized. The 34 units were turned by Nick, 15 additional units were turned by us. So, 49 of the 54 units had been fully turned and they were now at market rate rent.
A lot of the rents went from $600, almost to a thousand bucks, or $700 to $950 because of the improvements that we made. Ultimately, that pushed the value of the building up to about $4 to 4.5 million. We put the property on the market. We actually use the same brokers that brought us the deal and we put the property on the market with them. They marketed it, they showed it. There were a bunch of tours. There were a number of offers. There were about eight or nine offers.
And ultimately, there was one buyer, and that buyer ended up paying $4 million for the building. When we started marketing the building, unfortunately, the interest rates started going up. We think that interest rates hadn’t gone up so high so fast that the offer would have been $4.2 million or $4.4 million, but we were in this window back in the summer of 2022 where the Federal Reserve was meeting and bumping interest rates very aggressively, 75 basis points, 75 basis points, 75 basis points. And so, the market was a little bit unsure of what was going to happen.
And so, we definitely felt like that tempered the offers, the number of offers, and also the price because nobody was really sure what was going to happen with interest rates. Ultimately, winning the contract in August. And we closed in October of 2022, sold it for 4 million bucks. When you take the $2.45 million and you add in our acquisition fee, you add in the $120,000 that we spent on the improvements, you add in the broker commission that we paid the broker to sell the building for us, we were able to walk away with about $1.1 million of net profit, net-net profit.
During that time, we raised and recruited about a million dollars from our private investors. And because this was a smaller deal, instead of paying those investors, let’s say a 6 pref or an 8 pref or a 10 pref, and then giving them equity, what we decided to do is just pay them a 10 pref, and then also give them a 1% bonus. So, if somebody put in $100,000, that 1% bonus was a thousand bucks.
So, I would suggest on your smaller deals that you do under 5 million bucks, this is a perfect case study, a perfect deal for a new investor, a perfect deal for somebody who’s maybe got a nice large residential portfolio, did a number of residential flips, wholesaling, maybe you’re a successful realtor, you own a rental portfolio and you’re looking to get into commercial multifamily, I suggest to all my mastermind members that are kind of new to intermediate that they start with a 25-unit to 80-unit, a 25-unit to a 100-unit deal. Hard to find something off-market either with a broker or direct to seller, something that’s in that $2 million to $6 million range, $2 million to $6 million. And so, that’s exactly what happened with 54 Niles.
So, let’s talk about some of the profit centers. There are eight different profit centers from multifamily properties. There are eight different profit centers that you can make from multifamily properties. Number one is the acquisition fee. Number two is an asset management fee. Number three is a guarantee fee. Number four is a general contracting fee. Number five is a refinance fee. Number six is the profit splits from the cash flows. Number seven is the profit splits from the sale proceeds. And number eight is the property management fee.
So, on 54 Niles, if you’re a newer investor, new to intermediate, not a new investor, but new to intermediate when it comes to commercial multifamily, you may have flipped hundreds or thousands of residential properties, and now, you’re making the pivot into commercial multifamily. The first fee that we made from 54 Niles was a 3% acquisition fee. So, we bought the building for $2.45 million, 3% is about 72 grand. We made a $72,000 fee upfront.
Then secondly, we made an asset management fee. We charge our deals $25 per month per unit. So, get your calculator out, 54 units times 25 bucks is $1,350 per month. Multiply that times 12, it’s $16,000 a year. That’s not going to set the world on fire, 16 grand a year, but it does help – paying employees, paying for accounting, paying for your basically HQ staff.
The third fee that we made was cash flow. So, once we got to the point where we were stabilized and leased up all those units, we were making about $3,000 to $4,000 a month of positive net free cash flow. That positive net free cash flow was over and above. We pay the debt service, we pay the expenses, we paid our investors the 10 pref, and then we were making an additional 3 to 4 grand on top of that. And so, that was the third fee was the cash flow.
The fourth fee that we made or the fourth profit center that we made was the sale proceeds, sold the building. We ultimately made $1.1 million. Again, that was after the expenses, after paying our investors back, after paying the investors their 10 pref, after paying them their 1% bonus. We walked away with a $1.1 million profit, which is interesting.
Obviously, we love to buy the larger assets, the 200-unit deals, the 300-unit deals, the 150-unit deals. We own a lot of that stuff and it’s great, but it takes two to four years to stabilize small deals like this, under 100 units, 80 units, in this case, 54 units. We own a 52-unit. We flip the 16-unit. We own an 80-unit. We just bought a 41-unit. We’re buying a 28-unit. Those ones under 100 units are fantastic deals to buy, renovate, stabilize, cash flow, and ultimately flip if you’d like. You can obviously hold them too, but flip them and make a million-dollar POP or a half-a-million-dollar POP or a $2 million profit. That’s what we do on our smaller buildings.
On the larger staff, 80 units, 100 units, and up, the largest deal I ever did was 730 units. We did a deal that was 407 units, 492 units. We did it. We have one in our portfolio now, 296 units, 220 units, another 220-unit. But the small ones are quick, fast, juicy. And I’ll kind of wrap up with this. If you’re a residential investor or a realtor or you own a portfolio, the best thing about commercial multifamily is that while you’re improving it, it actually cash flows, versus you buy a rehab to flip. Well, that property is 100% vacant while you’re flipping it. It’s 100% vacant while you’re selling it. It’s 100% vacant while you’re working on the construction.
54 Niles as long as we stayed about 80% occupied or 75% occupied, it would cash flow and pay all of its own bills. Once we got to 90%, 95% occupied, then it pays for all of its bills, plus profit center number 3, which was the additional cash flow. And so, that’s why as a private investor, these are very stable, safe assets. That’s why if you’re an operator, maybe you’re a new student or a new member of ours, you want to be in our mastermind group, that’s why I recommend buying these 25- to 100-unit deals because they’re stable. You can sleep well at night. You’re not freaking out.
Guys, I’ve done hundreds and hundreds of rehab flips, most of which worked out, but some of them didn’t, and that I didn’t sleep well at night. I literally did not sleep well at night. I would wake up in the middle of the night freaking out about whether I was going to be able to make a profit from that deal or not. That’s why we recommend buying these smaller assets, cash-flowing them, and flipping them, especially as you pivot into multifamily.
So, hope you enjoyed this solocast, an update on 54 Niles, whether you’re one of our investors, maybe you’re a new member of ours, maybe you’re a new follower of ours on Facebook or LinkedIn. A couple of things to do, number one, make sure if you are looking to build a relationship with us and possibly invest with us, go to FreelandVentures.com/passive. There you can register on our investor portal and learn more about our opportunities.
Secondly, if you are an operator and you’re looking to grow your portfolio and pivot from residential to commercial multifamily, go to JoshCantwellCoaching.com. There you can apply to be in our mastermind group. And third, if you go to ForeverPassiveIncome.com, Forever Passive Income. I’m going to be hosting my very first live event. I’m going to be actually doing it for my mastermind members, but I’ve actually decided to open up the doors to all of our members for a few hundred bucks they can attend. I’m going to be teaching a two-and-a-half-day mastermind summit for all my mastermind members to teach everything from A to Z. Record that.
And so, we have that product. We have that in the kitty, if you will, for all of our new mastermind members to basically get the firehose of information that they need around acquisitions – raising capital, property management, capital improvements, how to find properties, how to sell properties, how to structure your financing, how to raise money. I’m going to be teaching all that over two and a half days in late January. And so, I would love for all of you to jump into that.
Obviously, my mastermind member is going to get that for free, but if you’re not a mastermind member, come test it out. Come check it out for a few hundred bucks. You can learn exactly what my multifamily strategies are – for acquisition, for raising money, for stabilizing properties. Guys, we’ve done this 19 times over the last six years. We bought 4,450 units of apartments. We’ve done an amazing job of taking deals full cycle. Now, I’m going to teach it and you’ll be able to learn those strategies and implement them in your own business. All right. Don’t forget to like and subscribe to the podcast, and we’ll see you next time. Take care.