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Real Estate Investors buy odd holiday gifts
My 2019 present to myself was a 6 unit multifamily in Ypsilanti MI just outside Ann Arbor
It's an "A" location for Eastern Michigan University Students but could attract U of M students too
But COVID was around the corner
1/8
My 2019 present to myself was a 6 unit multifamily in Ypsilanti MI just outside Ann Arbor
It's an "A" location for Eastern Michigan University Students but could attract U of M students too
But COVID was around the corner
1/8
Deal Summary
Four 3 bedroom units
Two 2 bedroom units
33% occupied
Asking ~$360K
I thought the seller had mispriced the asset & I knew lenders would be reluctant to lend much against it as only 2 of the 6 units were occupied. 2/8
Four 3 bedroom unitsTwo 2 bedroom units33% occupiedAsking ~$360KI thought the seller had mispriced the asset & I knew lenders would be reluctant to lend much against it as only 2 of the 6 units were occupied. 2/8
The seller had let units go vacant prior to listing it--big mistake
The two occupied units were each a couple hundred dollars below market
My cash was tied up in other real estate deals but some of my LPs gave me a private money loan for $330K allowing for a fast close. 3/8
The two occupied units were each a couple hundred dollars below market
My cash was tied up in other real estate deals but some of my LPs gave me a private money loan for $330K allowing for a fast close. 3/8
The seller got a LOT of offers. My bet was that no one came in well above ask because NOTHING had gone well above asking in Ypsi
When a deal is great why trip over nickels getting to dollars?
I offered ~$10K above ask but made it clear it was my best & final. They accepted 4/8
When a deal is great why trip over nickels getting to dollars?
I offered ~$10K above ask but made it clear it was my best & final. They accepted 4/8
Right after we closed, Wuhan COVID images began emerging. I was scared.
My student rental business plan was out the window.
I asked our manager to make our asking rents the most competitive in the market & to find section 8 tenants. 5/8
My student rental business plan was out the window.
I asked our manager to make our asking rents the most competitive in the market & to find section 8 tenants. 5/8
We added washer dryer hookups & machines. We also added new flooring in kitchens & baths. Easy value add.
Michigan's COVID lockdowns & evictions moratoriums have been hard on tenants & landlords alike. 6/8
Michigan's COVID lockdowns & evictions moratoriums have been hard on tenants & landlords alike. 6/8
In the trailing 12 months we did $36K of NOI vs. my original pre-COVID estimates of $42K
But when your margin of safety is large enough you're fine
15 months later the property just appraised for $570K against my cost basis of $400K
The refi will be complete next week. 7/8
But when your margin of safety is large enough you're fine
15 months later the property just appraised for $570K against my cost basis of $400K
The refi will be complete next week. 7/8
Know your edge
Behavioral: I knew other bidders would be greedy & offer a bit under ask
Operational: fast close, no appraisal, no fussing over with roof inspections etc
Price created my margin of safety
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8/8
Behavioral: I knew other bidders would be greedy & offer a bit under askOperational: fast close, no appraisal, no fussing over with roof inspections etcPrice created my margin of safety
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8/8
