Inside My 44-Unit Section 42 Building: $1.8M, $0 Out of Pocket

I owe you guys a quick update, so I'm back at the 44-unit building in Stephenville, Texas. If you haven't seen this property since we closed it, here's the headline: we closed this bad boy with $0 out of pocket.

Related reading: Inside My $6.4M 76-Unit Deal in Stephenville, Texas

One of the things I genuinely dislike about a lot of online mentors and coaches is that they never actually go to their properties anymore. They'll teach you how to buy real estate from a studio somewhere and never walk a hallway. So I want to do the opposite: show you the building, show you what's working, and show you the part that is currently embarrassing me.

Because people call me a slumlord in the comments. Fine. Let's look at what I actually own and you can decide.

The Deal: $1.8 Million on a Section 42 Property

We bought this beauty for a million eight.

If that sounds like a really good price, it's because it is. We did a good job negotiating this one, and that's precisely why it was so easy to raise the capital and put the whole deal together fairly quickly. A well-negotiated deal raises its own money. When the numbers are obviously good, you're not selling anybody on anything: you're just showing them the math.

This is a LIHTC property, which means we actually had to get government approved to be able to do projects like this. It is not a fast process. You're looking at roughly 60 to 70 days of audit, and you need some experience behind you to buy this type of property in the first place. That barrier is real, and it's also exactly why these deals are worth learning: most buyers can't or won't go through it.

The deal math, fully stabilized: this is worth $5 to $6 million off a million two.

Read that again. We made the first million on the buy. We're going to make the second $2 million on correct operations and management of this property: taking it to the next level. That's the part people skip past when they're chasing acquisitions. The best manager makes the most money. The purchase gets you in the door. The operation is where the rest of the value lives.

What the Building Actually Has

Let me answer the slumlord question with a list, because the amenities on this campus are not what people picture when they hear "subsidized housing":

• On-site laundry
• In-unit laundry as well
• A clubhouse
• A small gym
• A bingo hall
• An on-site property management leasing office
• Paved parking

Those are genuinely nice buildings. Absolutely gorgeous. And having an office space here in Stephenville means we can manage this property and the surrounding areas from the same place, which is the efficiency argument for stacking units in one market, playing out in real life.

Related reading: How the 76-Unit Deal Put Me at 170 Units in Stephenville, Texas

We also just installed automatic locks in the clubhouse. The company is DD Lock, and it's awesome. Everything is automated from my phone. So whenever a contractor needs to get in, or the retirees want to run bingo night or Bible study, it's all handled from here. That's a small thing that removes a recurring management headache: no key handoffs, no coordinating someone to drive out and unlock a door for a two-hour event.

Occupancy Is Almost Full

The tenants are happy to be here and they're paying rent. That's the number one thing I look for on a walkthrough, and it's true here.

We just leased up one of the vacants. We have two more to go, and then we're 100% occupied on 44 units. That's amazing, and it's the position you want to be in going into the stabilization phase: a building where the demand is clearly there and the remaining work is capital improvement, not lease-up panic.

The gardens are doing well. The tenants are happy. The project is on schedule.

Now the Part I'm Not Proud Of: the Weeds

Everything except for landscaping is going really well.

Apparently we fired the landscaping company. Nobody communicated with each other on that. So now we've got weeds everywhere. The lawn is, as I put it while standing in it, doing too well.

I'm not going to pretend it isn't there. Look at it: talk about slumlords. Gross. We're fixing it, and I apologize to any of our wonderful residents who are watching this.

I'm showing you this on purpose. This is what owning real estate actually looks like. A vendor gets cut, a handoff gets missed, and two weeks later your campus looks unloved. It isn't a strategy failure, it's an operations failure, and operations failures are the ones that happen constantly and get fixed constantly. The trees need to be trimmed up a little bit too. That's on the list.

The Texas Tax Break That Funds the Capex

Here's the piece of this that I think is genuinely interesting, and it changes how you plan renovations on a property like this.

In Texas, you can get 50% off property taxes on these low-income properties if you agree to spend $5,000 per unit every year on renovations. That includes essentially any renovation (interior or exterior) as long as the work is in each individual unit.

On 44 units, that's the budget we have to deploy annually. So the question isn't whether to spend it. The question is where it does the most good.

Right now we've got two projects in the queue:

• Fencing for the back. We just got that quoted. It'll eat up some of the budget.
• Carports. We're looking at how we want to install covered parking, and there are a few different designs to choose from. That will eat up a good deal of the budget.

Renovation projects are already in process across the units as well. But on a campus that already looks like this, with the annual spend effectively mandated, the planning shifts from "what can we afford" to "what adds the most long-term value and resident satisfaction per dollar." I'd genuinely like suggestions on the covered parking designs: drop them in the comments on the video.

Key takeaways

• We closed this 44-unit for a million eight with $0 out of pocket, and a well-negotiated price is the reason the capital raise came together quickly.
• LIHTC / Section 42 deals require government approval, about 60 to 70 days of audit, and prior experience, which is exactly why fewer buyers compete for them.
• Fully stabilized, this deal is worth $5 to $6 million. The first million came from the buy; the next $2 million comes from operating it correctly.
• We're two units away from 100% occupancy on 44 units.
• In Texas, committing to $5,000 per unit per year in renovations on a low-income property cuts property taxes by 50%: so the capex plan and the tax plan are the same plan.
• Things still break operationally. We fired a landscaping company, nobody told anybody, and now there are weeds everywhere. You fix it and move on.

There are a lot of opportunities in subsidized housing (Section 8, Section 42) for people willing to spend a little extra time and a little extra effort learning how to manage it. That extra effort is the moat.

So: slumlord or not? Slummy lawns, beautiful properties. Haters, keep the comments coming: I appreciate them, they boost our videos, and we genuinely value the input. Tell me what you hate about the property and what you love about it.

Watch the full video above for the walkthrough of the campus, the clubhouse, and yes, the weeds. If you want to learn how we structure deals like this, you can look into my mentorship at mentorship overview, or download our free course on getting started in multifamily investing. We also run a Facebook group where investors trade notes on these deals, and you can follow along day to day on Instagram at @christianosgood.

0:00 All right, I owe you guys a quick YouTube video. So, we're back at the 44 unit building. If you guys want to see this or haven't seen this since we closed it, we closed this bad boy. $0
0:07 out of pocket. Everything except for landscaping is going really well.
0:10 Apparently, we fired the landscaping company. No one communicated with each other on that. So, we got weeds everywhere. We are fixing that. Other than that, this thing is going beautifully. We have tenants who are
0:19 happy to be here paying rent. We got automatic locks installed in the clubhouse. Well, I don't have a link for these. Company is called DD Lock. It's
0:27 awesome. take us out the front door here. Uh, but we have these all automated on my phone. So, whenever a contractor needs to be here, the
0:35 retirees want to do bingo night or Bible study and it's all in here. Other than that, project is on schedule and doing
0:42 well. We just leased up one of the one of the vacants. We have two more to go and then we're 100% occupied on 44 units. That's
0:50 amazing. There you go. Details of the deal. We bought this beauty for a million8. If you guys are thinking that sounds like a really good price, it's
0:58 because it is. We did a good job negotiating this, which is why it was so easy to raise the capital uh put together this whole deal uh fairly
1:05 quickly. It is LITC, so we actually had to get government approved to be able to do projects like this. Uh it's a long process. It's about 60 70 days of audit.
1:15 You need some experience to buy this type of property. But I mean, seriously, just look how nice the buildings are looking. Absolutely gorgeous. It's fun having an office space here in
1:24 Stevenville so we can manage here in the surrounding areas. I can show you guys what I'm talking about with the weeds though. Look at this.
1:38 Like talk about slum lords gross. Yeah, we'll we'll we'll fix that. I I apologize if any of our uh wonderful
1:46 residents are watching this. I do apologize. Uh other than that, looking good. Good trees need to be trimmed up a little bit. Tennis are
1:54 happy. Gardens are doing well. The lawn's doing too well. Again, fixing that. Renovation projects in process. We just got a fence quoted for the back.
2:04 And we're also looking at how we want to install carports. You guys want to take a look at the parking. Any suggestions, drop in the chat. There's a few different designs for covered
2:12 parking. But interestingly, in Texas, you can get 50% off property taxes on these low-inccome properties if you
2:19 agree to spend $5,000 per unit every year on renovations. So, that includes any renovation. We just have to be in
2:26 each individual unit, interior or exterior. But what would you guys do?
2:30 Car porch will eat up a good deal of that. Fencing will eat up some of that.
2:33 We got 44 units we got to spend five grand on. And a campus looks like this.
2:38 Curious your thoughts below. Let me know in the comments. Uh guys, this is a deal when fully stabilized. This is worth5 $6
2:45 million off a million two. You're looking for opportunities like this.
2:50 Learn subsidized housing. Section 8, section 42. There are a lot of opportunities that you spend a little extra time and a little extra effort
2:58 learning how to manage it. The best manager makes the most money. We made the first million on the buy. We're going to make the second $2 million on
3:07 the correct operations management of this property. taking it to the next level. We got on-site laundry. We got in-unit laundry as well. Got a
3:15 clubhouse, a small little gym, a bingo hall, a PM on-site leasing office, paved parking. For those who have called us
3:22 slum lords, screw you. That's the stuff I own. I have slummy lawns, beautiful properties. No, I'm just kidding. Uh
3:30 haters, keep the comments coming. I appreciate them. They boost our videos and we value your input. So, uh tell me all the things you hate about this property. Tell me all the things you
3:38 love about the property. Give me suggestions below. We'll see you guys all in the next episode.