Denny and Dessiree Troncoso found this 20-unit apartment for sale on the local MLS in May 2016. The seller was a custom home builder and his son had been managing the property for him. The seller originally had the property priced at $1,200,000 and rejected five offers from Denny. Finally, the seller accepted an offer of $950,000. The seller was motivated to get out of the business and knew they were serious buyers. Denny eventually purchased the property in May 2017.
Cash Flow $ 30,000 (below market rent)
Purchase Price $ -950,000
Dessiree earned a commission as the buyer’s agent for 5% of the purchase price and they put that and some of their own money in for a portion of the down payment. They qualified for a 75% LTV bank loan with their own credit and experience buying other multifamily properties. To cover the additional funds for the down payments, they partnered with other joint venture partners.
During the inspection, the inspector noticed some items that needed to be addressed such as the parking lot, roof pipes and other miscellaneous items adding up to $15,000. Denny gave the seller 2 options - lower the price or fix the items. The seller agreed to give Denny a credit of $7,500 at closing so he would not have to do the repairs himself and they agreed.
Repairs Completed After Closing:
Removal of 18 Palm Trees $ -3,000
Fix Cracked Concrete in Parking Area $ -4,000
New Sign $ -550
Replaced Roof Boots Chewed by Squirrels $ -1,250
Total Repairs= $8,800
The units were 100% occupied, but at below market rent (lowest rent was $550/mo). 19 units are 2 bed 1 bath, and there is one 1 bedroom. The property has 2 buildings, one built in 1993 and another in 1986. The age and condition of the buildings compared to what is out in the market is very attractive. They found that the historical insurance costs were way higher than necessary, and after shopping around could procure new insurance at a savings of $8,000 per year. After speaking with appraisers, they knew the property was a good deal since he could easily increase rents and reduce other expenses as well. Currently, the cash flow is $2,500/month which is projected to grow to $4,500/month in year 4 conservatively. Denny expects to be able to increase net operating income by $40,000/year, and then the property will be worth $1,450,000.
The joint venture partners will receive payments of 8% annually on their investment (paid quarterly) and will share in the profit of the sale of the property and/or get their full capital back and a continued equity interest, if they refinance instead of sell.
The property needed very little interior work and was well taken care of. The seller had actually built the units himself for the previous owner, and had excellent records of all past repairs done to the property. Denny also saved on pest control and property management fees since this property was near another multifamily that he owns. Denny and Dessiree worked hard to educate themselves, and claim that persistence and building relationships are a big part of their success.
Reprinted Courtesy of Central Florida Realty Investors. Visit www.CFRI.net From the October 2017 issue of the CFRI Newsletter
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