The Fastest Way To Build A Six Or Even… Seven Figure Real Estate EMPIRE!
I get a lot of questions about what it’s like to run a large multifamily business — especially when it involves capital improvements, property management, acquisitions, raising capital, and more!
As a way to bridge the gap and to show you what’s involved, I’m sharing an update with the various projects we’re working on, from our smallest properties, to our largest ones.
In these short updates, I pull back the curtain and reveal the good, the bad, and the ugly of our multifamily operations. The goal of these reports is to give fellow (and aspiring) real estate investors a sense for what’s involved at each level of a project.
The Multifamily Real Estate Report - June 2021 Breakdown
- Warner Road:
- 5 unit building, fully occupied, cash flowing.
- Zero work at this point.
- All in for $150k, worth $225k.
- Paid cash using other people’s money. Private lender charging 10% interest.
- With interest rates super low, we’re refinancing this property to bring our cost to capital down and entering a 30 year loan at 4% interest.
- 16 Acres:
- 16 Unit Building
- It was a mess when we bought it. Very mom and pop vibe.
- Paid $450k + $90K wholesale fee, so all in for $540k.
- In the last 8 months since we’ve owned it, we’ve been removing bad tenants and getting government subsidies to go towards unpaid rents.
- At one point, only 7 of the 16 tenants were paying us. Today, 15/16 units are occupied and paying.
- Original rents were $700/month. Our latest lease is now renting for $725/month. This increase pushes income and property value up.
- If we continue to stay 90% occupied, we’ll be all in for about $575k, and it will be worth over $1M.
- 52 Lake:
- Bought a building that previously had a fire causing damage to 10 of the 40 units.
- Previous owner got a settlement and put it back into the building and then sold it to us.
- We bought it for $2.7M, and paid a wholesale assignment fee of $300K.
- Our goal is now to lease out the 10 units that were impacted by the fire (currently vacant), which are now new construction units.
- 6 other vacancies – 2 residents passed away, 4 moved out. (Total vacancies = 16 units)
- Renovating/landscaping to bring new life to the property, including outdoor seating area, paint job, new grass, and more. Overall, creating a great first impression for prospective tenants.
- After bringing up occupancy, renovations, and raising rents, we believe the building will be worth about $5.2M.
- 54 Niles:
- 54 units – 20 occupied units + 34 vacancies.
- 34 units were vacant when we bought it. These units were improved by the previous owner, but not rented.
- As of this week, we have 9 new leases and 2 strong applications, which should bring us up to 31 occupied units.
- 198 Unit:
- Sold and it closes in approx 60 days.
- 407 Unit:
- Refinanced this building about 90 days ago.
- Returned almost all of the investors equity ($3.6M) except for about $350k because the lender required a $1.2M escrow for COVID.
- We just found out this week that Fannie Mae and Freddie Mac no longer require COVID escrows, so the $1.2M was released back to our operating account, which allowed us to pay off the final $350K of investor equity.
- So, within 2 years, we were able to buy the building, renovate it, refinance it, return all the investors equity, and had about $900K tax-free refinance proceeds, which goes to all general partners (including me) and our limited partners.
- Expecting $80k-$100K/month of net free positive cash flow. This money will be distributed out every quarter to the general and limited partners.
- The building is producing forever passive income to all of the investors.
- 80 Maple:
- 80 unit building
- Unfortunately we had an 86 year old tenant who passed away.
- With 3,700 units, there’s about 5,000 people who live in our buildings. As such, it’s inevitable that we will experience a loss of tenants due to death.
- Georgia Plains:
- 730 Unit
- Partnership with two others.
- 4 of our 5 buildings have sold.
- 216 Unit
- We are at the tail end of a refinance on that one.
- We were originally projecting $400K of tax free refi proceeds. Based on the performance of that refi, we actually think that number will double.
- Higher rents and lower cap rate than projected, making the value higher, which results in more tax free refi proceeds going to all investors.
- 600 Units – Potential Property
- Had lunch with a guy who has 600 units and talked to him about selling his portfolio to us.
- 498 Units – Potential Property
- I walked 498 units and we’ll be making an offer on this
- 74 Unit – Potential Property
- We walked a 74 unit which we made an offer on for $4.3M, which is about $58K/door. I don’t think we’ll get this deal, because I think others will end up overpaying for it.
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Josh Cantwell: So, hey, guys, welcome back to Accelerated Real Estate Investor. It’s Josh. So excited to be with you again. Thanks so much for joining me. I just want to say thanks to all the folks who have joined our podcast, shared our content, engaged with us on Facebook, and subscribed. Thank you so much. Today, what I want to do is just give you another kind of multifamily Inc. update on everything that’s going on in our business and give you some actual insight into what it’s like to run a large multifamily operation in a large apartment operation, especially when you’re vertically integrated and doing capital improvements and property management and you’re doing acquisitions and raising capital and doing them altogether. So, let me give you some updates. We’ll talk through some of our deals.
Josh Cantwell: So, let’s start with our smallest property and then we’ll work to our largest property, okay? So, our smallest property that we have is a five-unit. It’s called Warner Road. Warner Road is five units, fully occupied, cash flowing, and really zero work. We’re all in for $150,000. It’s worth 225. And because interest rates are so low, we are currently in the middle of a refinance to refinance that. We paid cash for it. We used other people’s money. We’re refinancing that property with interest rates as low as 4% to get our cost of capital down. Right now, we have a private lender that lent us the money at 10% interest. We’re going to refinance and go into a long-term 30-year loan at about 4%, interest. So, that’s what’s going on with that little five-unit.
Then you go to our 16-unit which is called Acres or 16 Acres. We bought that building. It was kind of a mess when we bought it. It was very mom and pop. We bought it for 450. We paid another $90,000 wholesale fee. So, we’re all in for 540. And we basically got the underwriting on the back of a napkin. We literally got the underwriting on the back of a piece of paper. As far as the rent roll, the guy was collecting rent, putting it on a ledger, handwriting it. And really over the last eight months since we’ve owned it, we’ve been kicking out, moving out the bad tenants. We’ve been collecting as much rent as we can. The people that have been trying to play the eviction game, we’ve worked with them to get some subsidy from the government, from the local housing networks. And we just got approved for a $5,400 rent payment for this one resident. Her name is Brooke, who is not paying the rent. So, she’s moving out and we’re getting caught up on all the rent for really the last almost eight months all at one time, so we’re getting a check for $5,400. And as of this recording, we had dipped from 16 units, we had dipped all the way down to only having seven units that were paying us. Now, we’re back up to 15 out of 16 units that are occupied and paying. And we have one vacant unit that we are currently turning. That’s a building that we originally underwrote to rent the units out for $700 a month. Actually, our latest lease is now renting out for $725 a month and so that’s going to push the income, which is going to push the value. And if we can continue to stay about 90% occupied and push the rents to 725, 750, we’ll be all into that building for about $575,000 and it’ll appraise for over $1 million, which is great.
Then you move on to 52 Lake. 52 Lake we just bought. Actually, just closed on that on – today is June 10th so we just actually closed on that I think it was May 28 or something like that, right before Memorial Day weekend, and we bought that building. We had 40 units that were occupied and we just walked the building three times again in the last week or so, and we have a plan to lease out. We’ve got 10 units that were improved when we inherited the building. There was actually a fire. The previous owner had a fire, got a million-dollar settlement from the insurance company, and put most of the money back in the building. Then we bought the building for $3 million. Actually, a friend of mine and a former student of mine, Darren, was really upset with us that we bought the building. I guess he looked at it a while back and we bought it for 3 million. We paid the wholesaler. Actually, we bought it for 2.7, paid the whole seller 300,000. So, the wholesaler got a $300,000 assignment fee. And now, again, our goal is to simply lease out the ten units that were impacted by the fire because now they’re all essentially new construction units. We’ve also got those ten plus we got six other vacancies. We had two people actually passed away, older residents who just passed away, and we had four other units that moved out. So, we have a total of 16 vacancies right now. Out of those, ten of them are essentially new construction so we don’t have a lot to do. We’ve just got to lease them out. So, we’ve got to get a really aggressive plan.
What we’re going to do is on the CapEx, there’s actually a courtyard in the middle. The building is U-shaped and so there’s a courtyard in the middle. So, we’re making plans to do pavers and a river rock in the main courtyard area because there are four drains there and it’s an area where there’s a lot of water that can collect there. So, we’re going to do river rock with some cement pads with three different pergolas, picnic tables, benches, and we’re going to hang LED lights across the U-shaped courtyard area. So, it feels like a downtown, like if you’re familiar with Cleveland, East 4th Street type of area. It’s kind of a bar, outdoor restaurant type of feel, outdoor sitting area. So, we’re going to do that. We pulled the awnings off the front of the building. Awnings had mold growing on them, just mossy type of stuff. Doing all the landscaping in the front, cutting the grass, painting the curbs, painting some of the pavers and stuff like that in the front of the building, and just really focused on having a great first impression and then leasing out those ten units that were just impacted by the fire because they’re brand new. And then the other six units, we’re going to turn. Some of them are half turns. Some of them are full turns. It’s going to cost us about $5,000 for a half-turn, about $8,500 for a full-turn on those. And when we’re done with that, the building is going to be worth, when we raise the rents and just kind of organically work through the unit turns over the next two years, the building will be worth about $5.2 million.
Some other things to note. We bought 54 Niles. We just had, this past week, we had 34 vacancies when we bought it. Fifty-four units. Thirty-four were improved by the seller but not rented. Only had 20 occupied units so we got a loan through Lima One, a bridge loan, and that bridge loan has dollars in it for renovations. Well, we just raise all of our own money. We’re going to use that for renovations instead of using the rehab dollars from Lima. So, we’re going to use the CapEx dollars that we have in our operating account for that if we need it. But really, the focus is 34 units that were improved, new LDP, new flooring, new AC units, new electrical panels, got rid of the old Federal Pacific panels, painted all the cabinets, new hardware, new appliances, new bathrooms, new vanities, new toilets, all these kind of things. Just lease the sucker up. And the good news is, just this week, we actually had nine new leases, seven move-ins, and two additional applications that are really strong. So, hopefully, we have 11 leased units this week at that 54-unit.
More news. We have 198-unit that we own down in Mobile, Alabama. We actually sold that in a classy area. Sold that. So, that’s under contract. Hopefully, that will close in about 60 days. Our 407-unit down in Albany, Georgia that I partnered with Tim Bratz on, if you know Tim. That refinance was approved. We refied that building about 90 days ago, returned almost all the investor’s equity, about $3.6 million. We returned all their equity except for about $350,000 because the lender required a $1.2 million escrow for COVID. And this week we just got news that Fannie Mae and Freddie Mac are no longer requiring COVID escrows. So, the $1.2 million was released back to our operating account and we were able to take that 1.2 million, pay off the final $350,000 of investor equity. So, within two years we were to buy the building, renovate it, refinance it, and then return all the investor’s equity and had about $900,000 of tax-free refinance proceeds, which goes to all of the general partners, including me and our limited partners, which is really, really exciting. What’s going to happen now with that building is that it’s going to cash flow about $80,000 to $100,000 per month of net free positive cash flow. And net free positive cash flow, pretty amazing. And so, that’s money that can be distributed out to the investors, general partners like me and the limited partners can be distributed out every quarter. So, we’re expecting regular consistent paychecks. And this, guys, is the true essence of forever passive income. When you buy a building, put in the work, refinance it, stabilize it, and now the building is producing forever passive income to all of the investors. That’s what forever passive income is all about.
Also, in our 80-unit, which we call 80 Maple, unfortunately, we had a resident, 86 years old, who died. I don’t want to get into the details but he passed away. We found him in his unit. We did a wellness check on him and we did a wellness check about two weeks ago. He was alive. He paid his rent. And we did a wellness check this week and he had passed away. So, that’s, unfortunately, part of the business that just it happens when you have 3,700 units. That’s about 5,000 or 6,000 people who live in our apartment buildings. People die every day. It’s how it goes. Also, our 730-unit down we call Georgia Plains down in Albany, another partnership I have with Tim Bratz and Fadi Boumitri. We’ve got four out of those five buildings sold so that’s exciting. That’ll close and transfer in the next 60 to 90 days. Also, our 216-unit down at Lawton, Oklahoma, which we call Crosby, we are at the tail end of the refinance on that one. We’re expecting in July that that will refinance. We were originally projecting about $400,000 of tax-free refied proceeds. Based on the performance of that building, we actually think that that refi number is going to double. The value is actually higher than we projected. The rents are higher than we projected. The value is bigger, the cap rate is lower, which means the values are even higher and that means that the refi proceeds are going to be even more.
So, for those investors that in that deal have been getting a 10% profit, their limited partners plus us who are general partners are all going to participate in those tax-free refi proceeds, which are pretty, pretty exciting. Also this week, I had lunch with a guy that owns 600 units talking to him about selling his portfolio to us. I walked 498 units, which we’re going to be making an offer on. That’s exciting. We walked to a 74-unit which we made an offer on. I don’t think we’re going to get that one because I think other guys are going to overpay for that but we made an offer of $4.3 million which was about 58,000 a door. So, it has been a very fun and busy week at Freeland Ventures. So, I hope you enjoy these updates, just trying to be as transparent as possible, walking you through a bunch of the buildings that we own, the good, the bad, the ugly, mostly good stuff going on for sure. Unfortunately, dealing with people passing away is not fun but we have several successful sales, several successful refies, a couple of new purchases, and definitely making a lot of offers on buildings as well. So, we’re excited for that.
Josh Cantwell: So, if you want to learn more about investing in multifamily and apartments and you need a coach, a mastermind group, and you want to partner with me, go visit JoshCantwellCoaching.com. There you can apply to be a part of our coaching organization, mastermind group, and partnership program. That’s the only people that I partner with are the people that are in our mastermind, people that I build and have relationships with. And so, if that’s something that interests you, somebody like me who can raise capital, sponsor loans, network with us, have me coach you on your deals as well as potentially partner with you, go visit JoshCantwellCoaching.com, apply for the program, and see if you qualify.
So, there you have it, guys. Another episode of Accelerated Real Estate Investor. Thanks so much for jumping on. Don’t forget to hit the subscribe button and I hope you enjoy these episodes where I just kind of get on, peel back the onion, and tell you exactly what’s happening on in Josh World, Freeland Ventures World. And thanks so much for being here. Don’t forget to subscribe. Share this whatever you can. We’ll talk to you next time. Take care.