Over the last week, I have had the pleasure of attending 2 events with two of the largest real estate investment groups in Texas. The first event was a Lifestyles Unlimited case study in Houston and the second was Brad Sumrok’s R2R event in Dallas. Both events had over 300 people in attendance and multifamily investors who are members of these investment groups shared their stories. I wanted to share one story and a key takeaway from each event:
Lifestyles Unlimited Case Study
Owner discussed purchasing 248 unit Yorkshire Village in East Houston. He purchased the property for approximately $28K/unit in 2008 and spent another $2K/unit in rehab. He had to assume the current loan on the property thus he ended up putting 33% of the purchase price in initial equity. The property was sold in 2016 for approximately $37K/unit. Over the 8 years of ownership the equity owners received a 100% return.
Takeaway:
Due to the original seller putting long term debt (CMBS) on the property in 2003 with a maturity of 2013, ownership group had to put very large down payment (33%) vs. the standard 20% down. As a buyer, this reduces your return on equity and flexibility on executing different business plans. As a seller, you typically have to take a lower price due to a smaller buyer pool that will accept or qualify for the assumption as well.
Brad Sumrok R2R
Weekend training seminar over 2 days with a bus tour on day 2. The first property we toured was 38 unit Hacienda Serena in Irving, TX. This property was initially purchased in 2013 with a recourse bank loan due to low occupancy and a large amount of deferred maintenance. After owners cured the deferred maintenance and stabilized the occupancy, they sold the property to new owners in 2015. The new owners were able to put long-term non-recourse debt on the property.
Takeaway:
There are many ways to invest in real estate and transactions can be win/win. The first group was a more hands on owner that was comfortable signing a recourse loan and working in the business (significant single family rehab experience). The second group wanted to sign a non-recourse loan, own a stabilized property in the area for economies of scale (they already owned a smaller property in the sub market), and did not want to do extensive rehab ($50K in first 6 months).
I work with both Lifestyles Unlimited and Brad Sumrok members in purchasing apartments in Texas and across the US. If you want to learn more about financing your next acquisition or refinance an existing commercial property, you can reach me at: 214-300-5035 or jeng@oldcapitallending.com
