Your First Multifamily Value Add Purchase can be overwhelming.
Brandon Blount and his partner pulled the trigger and lived to tell the tale of their first multifamily deal and are now looking for their next opportunity. Reading books, listening to podcast, and talking with investors helped them create the plan, but they soon learned, there is no substitute for experience. The lessons they learned by doing an actual investment don’t compare.
Branton is former active duty and current reserve member of the US Armed Forces. His military experience uniquely qualified him to recognize the opportunities a military town can offer. So, he and his partner jumped into their first deal, a 16 unit value add property.
First Multifamily Value Add
First Multifamily Value Add was a true value add opportunity in all aspects. The property had deferred maintenance, rents that were well below the market and it was 30% vacant. All of these issues made acquiring the property difficult, but perseverance paid off.
Due diligence was enlightening. To start with, the seller had no records, and the management company had only one lease. The deferred maintenance was easy to identify, and plan for.
Having walked each unit, there was a firm understanding of what needed to be done.
There were 5 vacant units that needed to be updated and rented ASAP.
The color scheme was set, levels of finish set, contractors hired, and there was no time to waste given their hard money loan with a nine month window to avoid any additional points.
As soon as the new management was in place and the light was shined on residents. In a very short amount of time, tenants who were up to no good decided to move out rather than face the heightened awareness of management. Instantly, the vacancy rate went from 30 to 75%.
The additional vacancy was a blessing and a curse. The blessing, now additional units could be upgraded without the need to work around tenants. The curse was the loss of rent and the additional funds needed to renovate the additional 7 units.
The first multifamily value add project had the potential to be a show stopper given the wrinkle presented by additional vacant units. However, the additional challenge turned out to be a blessing. It allowed a greater number of units to be renovated right away and get to the higher rents faster.
Once the process was set, the contractors were able to renovate quickly without stopping. When the newly renovated units were leased, the proof of concept gave a local bank the confidence in the project and provide a refinance. At the refinance, Branton and his partner were able to pay off the hard money loan, and repay the owners for money invested for the capital improvements.
Now there are 13 of the 16 units fully renovated with updated floor coverings, paint, kitchens, baths and appliances that command higher rents. The higher rents increase the NOI, value and ability to refinance.
Each week I ask my guest, “What is the Biggest Risk Real Estate Investors face?”
“Known unknowns”. You know it exists but you know that you don’t know the status of it. So you just have to plan accordingly. And I think on top of that as owners and as investors you have to be able to adapt. I know a lot of people that create a plan and they get so tied to that plan that they lose their flexibility and they and they lose their ability to adapt quickly.
I think flexibility is the key to adapt to risk. You’re going to adapt and you’re going to overcome it.
OK. Where do we go from here? We still have to move forward because the project doesn’t stop. We still got to get to the goal, the finish line. And so I think as investors your ability to remain flexible. You know don’t get don’t get off target. Don’t don’t go off on tangents and change the plan throughout stick to the plan but also understand that on it at any given time
the plan will change whether you want it to or not.
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