22 Years Old: First Apartment Building Acquisition Done

[DeletedUser397]

This is really awesome. I'm really inspired by how you took action at such a young age and are making things happen. Good for you.

 

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[stlsmoore]

Very cool, I def. haven't crossed doing Lonnie Deals off my list if I decided to go the physical property route, starting with MH's make so much sense.

 

[G_Alexander]

Thanks again for all the kind words!

BOOM. Congratulations. Is this in Iowa City or Chicago?

Milkanic,

This property is located in Chicago.

 

[Dsal]

Congrats man..im 23 and looking to do the same thing..this is definitely motivation...how did you learn the in's and out's of real estate though? im looking at the numbers your posting like damn i have a lot to learn..but where to start.

 

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[G_Alexander]

Congrats man..im 23 and looking to do the same thing..this is definitely motivation...how did you learn the in's and out's of real estate though? im looking at the numbers your posting like damn i have a lot to learn..but where to start.

I learned first and foremost by reading. I majored in Finance and Entrepreneurship in college, but you don't have to go to college to learn these things. Grab a couple of intro to finance books at your local library, and while you're there, grab some real estate investment books.

I read several apartment specific investment books recommended by members here at the forum. Great reads by: Vollucci, Berges, and Scruggs.

Another thing I did was I sought out and talked to the people I wanted to emulate or partner with in the future.

What you put into your preparation is what you will get out on the other end. I would start by reading until your eyeballs hurt and your brain feels maxed out on capacity; then take a break and repeat the process. The more up-front deal diligence and preparation you do, the more you mitigate your downside risk. I have yet to see the results of this particular deal, but I feel like going into it I was well prepared and had calcualted the potential outcomes.

 

[Twiki]

After this thread and after following your earlier thread about the mobile home deals, you are my hero. A couple of Lonnie Scruggs books "Taking the Mystery out of Money" and "Deals on Wheels" are two of the best books I ever read and helped get a sense of how Lonnie (and people like you) think(s). Very entertaining reads too... I could hear Mr. Scruggs' voice sharing his experiences, and teaching me how to use an HP financial calculator, while having a beer sitting on a lawn chair. Unfortunately I got scared off from doing MH deals because of all the news that was going around about the SAFE Act but that sure didn't seem to stop you!

 

[clarkster009]

Do you guys have a coach or mentor? If so, where did you find him or her?

 

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[prime]

Speed+ Haven't read your story for mobile, but read this and your definitely making moves!

 

[G_Alexander]

**Update: 10/29/2012

Things are moving along nicely. My property manager has had 10 potential renters through the property and has rejected four applicants. The applicants may have turned out to be decent tenants…but not my PM’s ideal long-term qualifiers. His strategy for my neighborhood is to get very high quality multi-year tenants who are working professionals typically searching nearby yuppie neighborhoods for places to live.

Improvements I have made so far include: added mini blinds, updated light fixtures, rehabbed the large garage (also cleaned it rigorously), and changed all door hardware/ synchronized keys for the property. I opted to go with upgraded door handle sets throughout the whole property, and also updated light fixtures where necessary. This was a tip I gleaned from Scott McGillivray (Income Property) which I too believe can have a subtle, but positive impact on ROI.

Scott's Blog

I will post pictures of the changes here when I get a chance to take some during the day. In the meantime…the hardware:

Thus far, my expenses are as follows:

The electrical work I had done included: adding individual meters for the basement unit and common areas, upgrading from 100 amp to 200 amp service, additional security/motion lights, and tidying up wires in the rear stairwell.

First mortgage payment is not due until December 1. As long as Unit 2 is rented by November 1 (showing to two more potential tenant groups today), I will have one month of direct gross income in the amount of $550 for November (I manage my own roommate, $1,350 from unit 2’s first month would go straight to my PM as fee) with no fixed expense. In December the goal is to be operating at breakeven on the two units.

The only decision making that needs to occur now is whether or not I go ahead with an all cash basement renovation during this late autumn/early winter, or do I forego the income and wait until the spring to finish the basement unit possibly with a HELOC?

Returns are always amplified when leverage is used and personally, I love having liquidity available so that I can go after any attractive investment that presents itself. It is these reasons that make the HELOC route more attractive to me.

Still, I feel that my payback period for the all cash renovation option isn’t a terrible either. Realistically I work so many hours at my J.O.B right now that I would not be able to actively use the cash elsewhere, and it means less time to stable, perpetual cash flow.

I have some thinking to do, and if anyone has any thoughts or additions I gladly welcome them! I will continue to post what I learn and what issues/successes I have with the current project.

I am still filled with excitement and smitten to know I own the building I walk into every night. It is truly a great feeling!

 

[G_Alexander]

Do you guys have a coach or mentor? If so, where did you find him or her?

If you are interested in finding a mentor, I would join the local real estate club in your town. Great way to network and meet others, both seasoned and novice, with the same interests.

That being said, I have met my mentors on this forum, through my univeristy and through other means, such as car meets. Just keep your eyes peeled while you live your life and never be afraid to ask someone who interests you a question.

Mentors will likely be just as flattered that you appreciate what they do, as you are by the fact that they are talking to you.

 

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[G_Alexander]

Have been very busy this past week at work, but as of November 1st, Unit 2 is rented:
$1300 a month with parking.

Valuable lesson: the rental market tanks yearly from September to April (the low period of the year). Much harder to rent, and rent ceilings fall. Was hoping to market lead with $1400 a month including parking, but I am satisfied with my current tenant and the rate!

I structured the lease to end 7/31/2013. I will give the tenants the option to resign at market (leading) rents at that point (roughly $1450 with parking, $1350 without), or I will have new tenants in place. Current tenants are a family who kept their last rental for 6-years though, so they may opt to pay the the higher price. I would prefer a long term tenant, and will assess the situation based on the finished garden unit (basement) rents and my cash flow at that time.

 

[MMatt]

Awesome man. I'm 20 and trying to build the capital to do this while I'm still young like yourself.

 

[21elnegocio]

Awesome man. I'm 20 and trying to build the capital to do this while I'm still young like yourself.

Same here man trying to build capital, on the other hand great effin work Alexander man your my hero bro one day I will be like you haha, anyways what else do you suggest to read to learn the real estate market? Im 21 and I was thinking of going to school for the Real Estate Prelicense what do you think of that ? Good or no ? So I can work buying and selling houses or is it just a waste of money going to school for that ?

 

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[100k]

Well done for taking action.

But why would you risk $300K debt just to get $1K of monthly income ?

You could easily invest $30K into 1 site (in SEO) and have a site that makes you $10K + per month after 6 months and sell it after 12 months for a nice profit!

 

[andviv]

You could easily invest $30K into 1 site (in SEO) and have a site that makes you $10K + per month after 6 months and sell it after 12 months for a nice profit!

Great idea. Please do tell us more about it and share links to your sites. How much are you personally making every month? What was your initial investment? How long did it take you to get there? We all would love to hear more, I am sure...

 

[oddball]

How much are you putting away for future maintenance and unexpected expenses?

 

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[Will]

Have been very busy this past week at work, but as of November 1st, Unit 2 is rented:
$1300 a month with parking.

Valuable lesson: the rental market tanks yearly from September to April (the low period of the year). Much harder to rent, and rent ceilings fall. Was hoping to market lead with $1400 a month including parking, but I am satisfied with my current tenant and the rate!

I structured the lease to end 7/31/2013. I will give the tenants the option to resign at market (leading) rents at that point (roughly $1450 with parking, $1350 without), or I will have new tenants in place. Current tenants are a family who kept their last rental for 6-years though, so they may opt to pay the the higher price. I would prefer a long term tenant, and will assess the situation based on the finished garden unit (basement) rents and my cash flow at that time.

After reading your 19, and 22. I just have to say I'm amazed and jealous lol. Well I wasted my youth like other people my age. Well I'm trying to save up for RE business, but the cost here in California is much higher then other state. I wish I can move out to different state if my wife lets me lol.

 

[Will]

HOLY Sh##, I just realize I'm 23.........I keep thinking I'm turning 26 for some reason............

 

[21elnegocio]

Great idea. Please do tell us more about it and share links to your sites. How much are you personally making every month? What was your initial investment? How long did it take you to get there? We all would love to hear more, I am sure...

+1 More info please i mean if you dont mind

 

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[G_Alexander]

Same here man trying to build capital, on the other hand great effin work Alexander man your my hero bro one day I will be like you haha, anyways what else do you suggest to read to learn the real estate market? Im 21 and I was thinking of going to school for the Real Estate Prelicense what do you think of that ? Good or no ? So I can work buying and selling houses or is it just a waste of money going to school for that ?

Thank you 21elnegocio. I would suggest reading Stephen Vollucci's and Steve Berges books on apartment investing, and I would also suggest reading Deals on Wheels by Lonnie Scruggs and any finance related books for that matter. While I wouldn't want to steer you off a path you have an interest in, I would suggest that you do not need a real estate license to be a successful investor.

I hired brokers and specialists to take care of things that I didn't want to / I wanted to automate. The key is to focus on what you are good at doing in the business. I value my time more than scouring through MLS ads and drafting up offer documents. There is no reason that you can't start doing smaller deals TOMORROW if you are prepared; even if you have to pool capital. I would spend time reading and learning, and then take the following steps:

1. READY
2. FIRE
3. AIM

Get prepared, pull the trigger, refine as you go. Keep what works and discard what doesn't. Don't sit life on the sidelines wondering what if.

Well done for taking action.

But why would you risk $300K debt just to get $1K of monthly income ?

You could easily invest $30K into 1 site (in SEO) and have a site that makes you $10K + per month after 6 months and sell it after 12 months for a nice profit!

If you go back and read the post on the first page that I made, while the cash flow AND not paying to have a roof over my head are both great...they were not the point of this deal. I am all in at roughly ~$13,500 and if I sold the building tomorrow it would fetch between $290,000 - $305,000. Less my debt and cost basis, that puts my profit at $66,500 - $81,500. If I finish the basement and wait for market recovery, the returns have the potential to be higher (but time and a higher cost basis then factors in). The play was instant equity creation, and I very much like that play.

How much are you putting away for future maintenance and unexpected expenses?

Will keep a retainer of ~$5,000, but I have access to additional capital if necessary. The building was recently updated almost everywhere, brand new water heaters, furnaces, roof isnt old, new steel support main-beam in the basement with steel support columns, new copper piping, new appliances, new light fixtures, and I just updated all the electrical. I realize anything can happen at any time though, and that is why the retainer will remain in place.

 

[The-J]

Great idea. Please do tell us more about it and share links to your sites. How much are you personally making every month? What was your initial investment? How long did it take you to get there? We all would love to hear more, I am sure...

Owned!

 

[LamboMP]

Well done for taking action.

But why would you risk $300K debt just to get $1K of monthly income ?

You could easily invest $30K into 1 site (in SEO) and have a site that makes you $10K + per month after 6 months and sell it after 12 months for a nice profit!

It's possible. But why would you let Google control your destiny? Seems like your suggestion is more risky. Your one algorithm change from broke.

 

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[21elnegocio]

Thank you 21elnegocio. I would suggest reading Stephen Vollucci's and Steve Berges books on apartment investing, and I would also suggest reading Deals on Wheels by Lonnie Scruggs and any finance related books for that matter. While I wouldn't want to steer you off a path you have an interest in, I would suggest that you do not need a real estate license to be a successful investor.

I hired brokers and specialists to take care of things that I didn't want to / I wanted to automate. The key is to focus on what you are good at doing in the business. I value my time more than scouring through MLS ads and drafting up offer documents. There is no reason that you can't start doing smaller deals TOMORROW if you are prepared; even if you have to pool capital. I would spend time reading and learning, and then take the following steps:

1. READY
2. FIRE
3. AIM

Get prepared, pull the trigger, refine as you go. Keep what works and discard what doesn't. Don't sit life on the sidelines wondering what if.



If you go back and read the post on the first page that I made, while the cash flow AND not paying to have a roof over my head are both great...they were not the point of this deal. I am all in at roughly ~$13,500 and if I sold the building tomorrow it would fetch between $290,000 - $305,000. Less my debt and cost basis, that puts my profit at $66,500 - $81,500. If I finish the basement and wait for market recovery, the returns have the potential to be higher (but time and a higher cost basis then factors in). The play was instant equity creation, and I very much like that play.




Will keep a retainer of ~$5,000, but I have access to additional capital if necessary. The building was recently updated almost everywhere, brand new water heaters, furnaces, roof isnt old, new steel support main-beam in the basement with steel support columns, new copper piping, new appliances, new light fixtures, and I just updated all the electrical. I realize anything can happen at any time though, and that is why the retainer will remain in place.

Thanks man, really appreciate your info great, I will definitely not sit on the sideline wondering.

 

[andyredsox]

A good and successful investment for you. Do you plan to have another one like this in the future? You're young but amazing in doing a good business. No wonder if you'll be very rich when you reach 40. Good luck and stay hungry for success!

 

[Rick Grantham]

Congratulations G Alexander.

Its good to see action being taken. Inspiring. :welldone:

Cheers-
Rick

 

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[roc]

Good thread man. One question for you, which I may have missed, you live in one unit. I'm assuming you got FHA funding since it's less then 4 units. Any advice on funding this project? Thanks roc

 

[shane8399]

My non-professional advice is buy a multi-family FHA before anything else. I am guessing I am going to see problems with underwriters, after renovating my current house into 2000 sq feet, and trying to tell the bank I want to owner occupy an apartment in a 4 plex (i currently own two homes).... It may be doable with proof of leases, but I am not hopeful, and expect a dozen hoops to jump through. Therefore if I want more buy and holds at this point, I am probably stuck buying another single family of equal value of my current homes (not good if I am trying to buy a fixer upper), seller financing, or 20% down with either my, or my/private money. I am currently seeking properties to flip to build up my capital/buying power and cash reserves.

 

[CEBenz]

Wow! Just saw this thread. Good job!
How did the mobile deals turn out?

 

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[21elnegocio]

this is great motivation right ?

 

[G_Alexander]

Update: September, 2013

Wow, time really flies. I can’t believe in just a few more weeks I will have had this property for a year: and it is finally stabilized. I have learned a lot (and spent a lot), and I am so ready for more.

In November of last year I got my first tenants, a nice family, for the 3-bed unit upstairs. Rent was $1,300 with parking (1 of 2 spots). I rented out the remaining garage spot in January for $100. Gross rents coming in were $1,400 + roommate rent of $550 for the first half of 2013. In mid-February we began construction on the garden unit in the building. It was a gut-rehab and the only hiccups involved seepage in the cove (dampness where the foundation wall meets the floor) and a change in contractors due to continued delays. To mitigate the cove seepage we installed an interior drain tile system for ~$5,000 (ouch!). Construction in the unit was completed in August, a full 6-months after we started. I present to you, the result:






Got renters in within a week for $1,000 a month! Current gross rents are $3,550 (with me hypothetically “paying†$550 a month).
Unit 1: $1,100 (me and a roommate)
Unit 2: $1,350 3 bed and garage spot
Unit G: $1,000
Parking: $100
Total: $3,550

In reality $3,000 comes in every month and I live for free. After my mortgage, management fees, etc. (40% expenses) the property is pulling in just over $600 in cash flow a month now that it is stabilized. Without me living there, it’s closer to ~$1,200! I use this expense ratio to illustrate expenses over time, but most months my expenses are just management fees and common area electrical and the rest comes straight to me. This is not to say that it doesn't hurt my heart when the garage door fell apart last month (new one was $900 w/ warranty) or when the A/C went out in the unit upstairs in July ($1,400 = ouch!); but these unkowns were to be expected (oxy-moron) in the first year of ownership!

Deal Metrics: Purchase Price: $210,000
All in cash out of pocket (down payment, upstairs and basement renovations): ~$45,000
Prior Equity Value: $7,350 (3.5%)

Current Property Value: $340,000
Less Total Debt: $202,000
Current Equity Value: $138,000 (40.6%)
Less cash invested: $45,000
Return: $93,000
ROI: 107%

While I created lots of value on this deal and had fun with the construction, my next project will involve much less construction necessary. I will be looking for simple cosmetic fixes. I will also be hunting for something much larger in size (~30-50 units)

Let’s do it again!

G. Alexander