I Bought A 20 Unit Apartment Complex For $350,000

My 20 unit apartment complex.

Let’s dive into the story

Owner initially wanted tax assessed price of $420,000 which is public information. Based on my first apartment complex, I knew I would be buying this 20 unit with instant equity day 1!

I was super excited so I reached out to multiple lenders to figure out my loan terms. The first lender I contacted was Bank of the West. They financed my 26 unit so this should be easy or so I thought. Reality was the complete opposite. Bank of the west didn’t like the deal since the occupancy was too low and the city was too “small” (population 50k). Afterwards, I reached out to my mortgage broker since brokers have a large network of lenders. My optimism was crushed again. Lenders said the loan amount was too small, the rent was too little, the price per door was too small, and the area was too “rural.”

What do I do next? I googled “hard money lenders Oklahoma” and called 18 different hard money lenders. A lot said no for the same exact reasons listed above. Finally, I hit 1 hard money lender who liked the deal and the upside, but didn’t like the offer price of 420K so I asked, “well at what price would this deal make sense to you?” They wouldn’t answer. I just said, how about 350k. After the loan offer did some quick underwriting, 350k worked! I said please send me a pre-approval letter for 350k purchase price so that I can negotiate down the seller.

I showed the seller my letter asking they property would only approve for $350,000. Along with every rejection, I was updating the seller to be fully transparent so he accepted.

Let’s dive into the numbers

Accepted offer price: $350,000

Hard money loan terms: 25% down payment (88k) , 9% interest only, 12 month term

Appraised at $400,000 (50k instant equity day 1 ; this is the power of getting off market deals using direct mail)

Renovation budget: $100,000 (lender financed the renovation, but I had to front the cost then go through an inspection to be reimbursed)

• 10k repaint exterior

• 40k to renovate burned down unit

• Remaining 50k to renovate the rest of the units

I was very hands off during renovations and let my property manager decide what was the most cost effective and tenant proof.

Burned down unit before and after photos.

After renovations, was able to raise the rents from $350 > $500-$550. If you are able to increase the rents, you increase the net operating income, meaning you increase the value of the apartment complex.

Let me show you the numbers.

• $500 rent x 20 units = $10,000/monthly gross income

• Expense ratio: 55%

• Monthly NOI = $4,500

• Annual NOI = $4,500 × 12 = $54,000

• Assuming 8% CAP rate for C-class apartment

• Value = $54,000/ 0.08 = $675,000

What if I want to do a cash out refinance?

• Assuming 75% loan to value for cash out refinance

• New loan = $675,000 × 0.75 = $506,250

• Existing loan = $262,500

• Total TAX FREE cash pulled out = $506,250-$262,500 = $243,750

• Total profit excluding down payment and renovation budget = $243,750 - $100,000 - $88,000 = $55,750

• I get ALL my down payment back, ALL my renovation budget back, PLUS an additional 56k tax free

This is what I underwrote in May 2022, but let me share the reality in the next post of how my cash out refinance turned out! Stay tuned for more…

I host free Q&As every Tuesday at 7 pm PST. Click here to join!

Want insider secrets to buy multifamily real estate? Check out the mentorship program!