Exiting my first multifamily
How we got here
For no reason at all other than it might help the few people who visit this site, for the past few years I've been sharing extremely thorough and transparent accounts of my deals on this website. This will be the final of three parts surrounding my first multifamily property, selling the asset.
The purchase blog is here
and the first year update is here
That will provide the backstory, and now I can tell you how we ended this project.
What did we make
This is what you really want to see, isn't it?
You don't care about the difficult parts or the lessons learned, you just want to see the profit porn.
The internet is a disgusting place.
Alas, I love to indulge your sin
I never really shared the deep financial details of this deal because they weren't just mine to share. I'm personally a really open dude but I respect my investors' privacy so this is the one deal I was sparing on details. Now that the deal is done, I'm happy to share.
Original purchase price $1,000,000
Initial capital raise $380,000
Initial loan amount $750,000
Exit sale price $1,475,000
I structured this with a simple joint venture LLC. 5 of us went in the deal in nearly equal shares, my main partner and I invested 23% each and the 3 other partners invested 18%. I took no acquisition fee or no management fee or anything like that, I didn't get paid anything additional for running the deal. Everyone got paid equivalent to their investment amount, in my case, 23%. Why did I do it this way? Because it's my first deal of this size and that makes me a significant risk, so I bought down my risk by working for free.
Why did I sell?
We did a really good job of turning this property around, getting out bad tenants, raising rents, and learning an immense amount about the business, but we wanted out for a few reasons.
We bought this property undercapitalized, this is something I've discussed thoroughly in the last 2 blog posts. That means we never had enough cash to make big improvements so we were always trying to do it out of cash flow and the cash flow was never enough so it squeezed our margins and prevented us from reinvesting into the property. This was overall our biggest mistake in the purchase, but there was no fix without going to investors and asking for more money (which wasn't a realistic option).
The property is a C class asset with all 1 bedroom 1 bath units, which I will never purchase again. Since I live in an Army town all the young people here are military and they stay on base, so the people who rent 1 bed 1 bath units here in town are generally those with unstable living situations. This means more turnover and a more difficult culture to deal with. If the person is stable but has a family, they can't stay here, and if the person is single but has money, they wouldn't stay here. Being at the bottom of the market for rents on single bedroom units is a systemic risk that I couldn't change, unless I sold the property.
Lastly, some of our investors wanted out and that's what's most important to me. It was a fantastic year in real estate this year so I sold while the getting was good.
This sign really pissed me off
I have to take a moment to make a personal rant. The name of this building when we bought it was "Eagles Nest apartments", which is a harmless name but I guess because I read so much history it kept reminding me of another Eagles Nest that has a very negative connotation.
In the late 1930's the Nazi's constructed a banquet hall on a mountain for them to gather and hang out at. the vast majority of people won't ever make this reference connection, but it annoyed me endlessly. The sign itself was also ugly so it had to go!
The first thing to do is thank the investors and the partners who helped me through this. I pulled my fair share of work but I couldn't have done it alone by any means, this is a team sport for sure. Luckily now that I have provided them big returns on investment they are eager to give me capital to put it back to work!
Second, I'm going to shove this in everyone's face for a while on social media.
Third, I'm actively looking for the next deal. The market has been hot and I haven't seen anything I like in a while but I figure as long as I look every day then eventually something will come up. I'm networking with brokers constantly so it's only a matter of time.