How We Bought a 24-Unit Apartment Building for (Almost) No Money Down: A BiggerPockets QuickTip Book

17 Pages·2015·0.42 MB·English

by  Brandon Turner

How We Bought a 24-Unit Apartment
Building for (Almost) No Money
Down: A BiggerPockets QuickTip
Book

Written By Brandon Turner
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How We Bought a 24-Unit Apartment Building for (Almost) No Money Down: A BiggerPockets QuickTip
Book
Copyright © 2015 by BiggerPockets Inc All Rights Reserved.
Written by Brandon Turner
Published by BiggerPockets Publishing LLC, Denver, CO
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It started with a simple book, and it changed my life forever.
The year was 2009. I had just picked up a copy of The ABCs of Real Estate
Investing by Ken McElroy from my local library and decided to dedicate a
Saturday morning to reading it. Within the first chapter, I knew I would never be
the same.
Within a few hours I finished the book and moved straight on to the sequel, The
Advanced Guide to Real Estate Investing, also by Ken McElroy. I'm not sure I've
ever read two books in a day, but my soul was on fire...
I was going to invest in apartment buildings.
This quick eBook tells the complete story of that turning point in my life.
Although I go into incredible detail on this post, I want to encourage you to look
beyond the details. You will probably never put together a deal exactly like this
because every single deal is different.
Every one.
It's not about understanding the details as much opening your mind to the
possibilities that exist in creative finance. If you want to know more about
creative finance and putting together deals with little money out of pocket, be
sure to pick up a copy of my book The Book on Investing in Real Estate with
No Money Down, which you can get on Amazon or on BiggerPockets with some
special bonus material.
With that, let's get to the story.
...The Luckier I Get
For years I thought it was luck. Or
providence. Or grace. And sure, it was. No doubt about it.
However, it was when I heard the quote (falsely attributed to Thomas Jefferson)
"The harder I work, the luckier I get" that I realized it was more than that.
This was hard work paying off.
This was being in the right place at the right time because I chose to be in
the right place all the time.
Let me explain.
The preacher on Sunday morning had just wrapped up his sermon, and the
crowds were released to enjoy the coffee and baked goods waiting at the back of
the church. I started chatting with a nice older couple whom I had known for
years. They had helped me work on my first home and taught me how to paint
trim on the exterior of a house. I had no idea that in their earlier life they had
been real estate investors. I just knew them as a "wonderful retired couple from
church."
"I just read this amazing book on investing in apartment complexes, and I think
that's what I'm going to do with my life." I told them, as I had told several people
in the 24 hours since finishing McElroy's book.
I was excited -- and I was telling everyone.
The couple exchanged glances and smiled. "That's great, Brandon" the man
replied, "and interesting because we actually have an apartment complex we are
considering selling."
I think my jaw still hurts from hitting the floor that day.
The Back Story
It turns out that this couple had purchased an apartment complex in the local area
30 years earlier and spent 22 of those years paying the property off, managing it
themselves, and maintaining a solid investment for themselves. When they
decided to retire and do more traveling, they didn't want to lose all the income
they had been receiving for years, nor did they want to risk the proceeds from a
sale in the stock market.
So they decided to sell the property on contract.
A semi-local business owner purchased the property from the couple with a
small down payment and took over the property. For several years during the
early 2000s, things were fine. The couple from my church received regular
payments and was able to supplement their retirement nicely. However,
then 2007 hit, and the economy crashed.
Although the owner of the property should have had no problem paying the bills
on the apartment, his other business ventures were not so lucky. He began taking
all the cash flow from the apartment complex and putting it into his other failing
businesses rather than maintaining the complex. Each time a tenant vacated, the
owner left the unit empty rather than rehabbing it to get it rent ready. Twenty-
four units went to 23, to 22, to 21, and so on. By the time he stopped paying and
lost the property in foreclosure, the property has just 11 units occupied.
The foreclosure was just wrapping up when I had that fateful conversation with
the couple from my church.
Putting Together the Deal
I'd like to say I was some
master negotiator and I used all the "J Scott Tactics" to get an amazing deal, but
honestly I just took what was offered on this property.
The sellers suggested a price of $565,000 -- the same price they had sold it to the
other buyer for 8 years earlier. I said, "Sounds good to me," and we moved
forward.
Looking back now, I probably "overpaid" based on the income that the property
was generating. After all, larger multifamily properties are valued based on their
income, and the income was pretty terrible because it was less than half filled.
However, things are never that black and white.
Yes, you should never pay more for a property because of what it "could be," but
you also need to look at the full picture and see that the income could be
increased very quickly. I would guess that of the 13 units that were vacant, 5
were in need of a really good cleaning, new paint, and some small miscellaneous
repairs. Another 5 were in need of a complete overhaul, including new carpet,
paint, counters, appliances, and drywall damage. And another 3 were completely
destroyed, drywall and all.
Now, let's talk about financing.