Financing and partnerships
Inside My $6.4M 76-Unit Deal in Stephenville, Texas
A full walkthrough of a $6.4M, 76-unit LIHTC property bought with $0 out of pocket: agency debt, a $2M syndication, 58 work orders, and the fix list.
We just closed on another 76 units. This one is in Stephenville, Texas, a $6.4 million purchase, and we did it $0 out of pocket.
This walkthrough captures the property about 24 hours after I bought it. Alongside the clubhouse, units, 13-and-a-half-acre campus and playground, I want to explain the purchase itself: the loan, the capital raise, the equity split, and the expected cash flow on day one.
Related reading: How Caleb Hommel Hit 200 Units and a $5M Fannie Loan at 22
Also, I'm learning to fly a drone, so pardon the camera work. Not my main thing.
The Deal Structure: $5.2M Agency Loan and a $2M Raise
The purchase price was $6.4 million. The loan was about $5.2 million, direct through Fannie Mae (that's what's called agency debt) at 80% loan to value. I still can't believe I qualify for those. Not long ago I was buying a couple of duplexes, and four years later, here we are.
The remainder was a syndicated structure, and I want to explain why, because I generally like joint ventures a lot more than syndications.
In a JV, everyone has to be active. Once you go past five partners, that requirement is where it gets complicated: a syndication gives you general partners and limited partners instead, so people can be genuinely passive. It's more legally intensive, and I don't do it by default.
We did it here because of the size of the raise. It was a $2 million raise, and I just didn't have two people who wanted to toss a million dollars each at it. I had a lot of people who wanted to put in $200,000. The capital stack decided the structure, not the other way around.
The general partners own 30% of this deal. We also built in an option to be the end buyer when the project wraps. When we finish fixing it up and get through our five-year hold, I and possibly some of the investors already on the deal can take it out in a JV later. We're putting a pin in the map so all the equity stays available to us at that 30%.
Cash flow is about $10,000 per month right now. The upside is millions of dollars: quite a few million.
But it isn't all about the money on this one. This project also gave me some of the staff I needed to make my property management company better. It got us to the right size in Stephenville, just under 200 units, which is fantastic. At that size we have real influence over how we manage, and enough income into the PM company to start cherry-picking staff and building the best possible company in our own base as we expand third-party management to neighboring properties.
What Comes With the Building
The office and clubhouse come with the property, along with some of the staff.
The main space is where kids do after-school programs. There are a few nonprofits running out of here: Bible studies, after-school programs, snacks, arts and crafts. The prior owner actually owned the nonprofit, so we'll have to start some of our own systems, work out the donations and the scheduling, and get it back up and running as fast as possible. These are three- and four-bedroom units and there are a lot of families here. That's something we want to do a good job stewarding.
There's also a computer lab with internet ported into the building that any tenant can use, a gym down the hallway, maintenance space, spare restrooms, the whole nine yards. The pool is right out back.
This is a LIHTC property, which means the rents are capped and we have some limitations on rent temporarily. Our goal is not to remove tenants and not to jack the rent on everyone. We love the people here and we love the community here, so we're going to try to keep it as awesome as possible. What we are going to do is a better job on the actual maintenance and repair of the property.
Grading the Prior Owners: B Minus
I'd give the prior owners a B minus. It's not bad. I've seen a lot of bad management, and this is not bad management: it needs some tweaking.
The clearest signal: there are 58 unanswered work orders.
When we knock out those 58, I'm expecting another 58 to come in from everyone else. That's what almost always happens. As soon as residents realize that new management actually does the work orders, more work orders show up. That's fine. We want that, because it sets the tone for what new management looks like.
Walking the campus told me the rest. Everyone sticks to their parking spot. There are no beater cars and no commercial vehicles just hanging about. You end up with a really clean, well-landscaped campus. That tells me the owners did a pretty good job managing.
There's still stuff to clean up, especially at the front of the property: the playground, a tattered flag I'm genuinely annoyed about, broken gutters. It's not perfect. But overall it's about a seven and a half out of ten for where it should be maintenance-wise, and seven and a half is pretty darn good for me.
Inside Unit 13C
There are 19 buildings on this campus, not counting the clubhouse and the other amenities: fourplex after fourplex after fourplex, all the way up the hill on the outer loop, across 13 and a half acres.
Unit 13C is a three-bed, two-bath that just had a move-out, and it's almost ready. It needs to be cleaned and there's still some maintenance, but the residents did a great job keeping it pretty clean. There's general debris on the floor and the carpets need to be cleaned or replaced, one of the two.
The things I look at in a unit are simple. What quality is it? Are there bugs walking around? I've found about one bug in one unit so far, which is a good sign. The carpet is a bit gross, and I always try to eliminate carpet. There's carpet upstairs here. We're not changing it immediately, but as we renovate and get further through the project we'll probably start swapping it out.
The bathroom is our starting point: toilet needs a clean, shower needs a clean, but I don't see anything that expressly needs replacing. We might redo the sink.
The back living area looks out on the campus: wide open spaces, the best of Texas out the back door. These are huge units, in an awesome town, in a safe area. I'd be willing to live here myself. That doesn't mean I'm going to, but in the same situation as any of my tenants, this would be an awesome place to live.
The communication I've gotten from tenants backs that up. They love the community, they feel safe, and they want to make sure there are no sweeping changes.
This is exactly what I like to see when I'm buying buildings: no major projects, simple TLC. Get it cleaned, get it prepped, get it online.
The Playground and the Marketing Problem
Welcome to my least favorite part of this project.
The playground is a little beater setup. They finally got the bricks out of the main area, which was covered in them. That slide is not at a good angle: I tried going down it in the rain and it was very painful. It's a liability and an accident waiting to happen.
So that spot becomes a dog park. We'll build a much bigger playground in the middle of the courtyard instead.
But here's the real problem with this campus, and it's not the playground itself. It's that there's no advertising.
You drive in and the first thing you see is an ugly playground and ugly slides. The ugliest stuff on the entire campus sits right in front of the leasing office, which is insane. Walk past it and you have a beautiful pool, a great setup, a beautiful campus and ready-to-go units.
There's no for-lease sign. There's no number to call in front of the property. There's nothing that clearly states you can rent here. And this marketing-less property stays almost fully occupied all the time.
This could be doing so much better and it can look so much prettier. The flags get replaced today, period: I'm not leaving Stephenville without that done, out of general respect for our country's flag. That thing is dead.
How This Deal Came Up
Deals like this come up, and they're usually relationship-based.
This one came off the back of a smaller transaction I did: a $1.8 million purchase, which opened the way to a $6.4 million purchase. Before that we bought a LIHTC property, 44 units of senior living, which is almost the same thing: big campus, all fourplexes, big clubhouse in the middle, gym, computer lab, all the normal stuff. Being a senior community, the 44-unit has a bingo hall. This one instead has child care services, an event space, a pool and a busted playground we're replacing.
Four years ago (a little less than five) I had four units. Two duplexes. Today it's over 400 units. That's how fast you can scale at a reasonable pace. I do three to five transactions a year, basically a transaction a quarter.
I bought a 38-plex, some 12-plexes, some 10s. Then I moved to Texas and ran the same strategy in a new market: a 25, a 26, a 44, and now the 76. Every one of those was a little step. It didn't take a long time to get here. It just took a few transactions.
If you're getting started or you have your first few rentals, a 76-unit can feel unattainable. This is the first deal I've done at a size where I think it starts to feel that way to people, and it would have felt unattainable to me not that long ago. I'm still in awe that we own it, and I don't think there's anything special about me. Plenty of people in the mentorship have done this too.
Key Takeaways
- $6.4 million purchase, roughly $5.2 million agency loan through Fannie at 80% LTV, and a $2 million syndicated raise: $0 out of pocket.
- The capital stack picked the structure. I prefer JVs, but with a lot of $200,000 checks instead of two million-dollar checks, syndication was the right fit.
- General partners hold 30%, with an option to be the end buyer after the five-year hold so the equity stays with the people who built the project.
- 58 unanswered work orders is a management signal, not a disaster. Clear them, expect 58 more, and let that set the tone for new ownership.
- Buying something at a seven and a half out of ten beats buying a gut job. No major projects, simple TLC, get units cleaned and back online.
- Sometimes the biggest upside is free. A full campus with no for-lease sign, no phone number and an ugly playground at the entrance is a marketing fix, not a capital expenditure.
- Deals are relationship-based and they compound. A $1.8 million purchase opened the door to this $6.4 million one.
Watch the full video for the drone footage, the clubhouse tour, the inside of 13C and a good look at the playground I'm about to demolish. If you want to build toward a deal like this, there's a free course on getting started in multifamily investing and a free Skool community with a deal calculator in it, and you can learn about my mentorship through the link in original episode description.
Read the episode transcript
0:00 We just closed on another 76 units. This is in Stevenville, Texas. This is the property right here. Also, this is me 0:08 trying to learn how to fly a drone. Uh, not my main thing, so pardon the uh, poor camera work, but what we're going to do on today's video is I'm actually going to show you the property, a 0:15 walkthrough in the office, the units, the playground, how you actually take out deals like this, the details of the deal, and more. Stay tuned. I'm Christian. This is Multif Family Strategy. Here we go. We did it again. 0:27 We closed on a 76 unit deal, $6.4 million. The loan was 5.2 million. $5.2 million loan. I still can't believe I 0:35 qualified for those. Not long ago, I was just buying a couple duplexes and uh you know, 4 years later, here we are. Who would have guessed? I'll show you guys the clubhouse. This office comes with 0:43 the building as well as some of the staff who I'll try not to bother, but we'll cruise through here. 0:51 The main space. 0:54 I'll keep a few people back there off camera. 0:59 This is one of our main areas. This is where the kids will do their afterchool programs. We have a few nonprofits that run out of here. So, this is something that we definitely want to keep going. 1:07 Uh the prior owner actually owned the nonprofit. So, we're going to have to start some of our own systems, but we're figuring out the donations, figuring out the scheduling. We're trying to get this up and running as fast as possible. 1:15 There's Bible studies, after school programs, snacks, arts and crafts. These are three and fourbedroom units. 1:22 There's a lot of families here. is something that we really want to make sure we do a good job stewarding. The computer lab right here, so any of our tenants can come in here. 1:31 We have internet access ported into the building. People can use the computers. Uh we have a gym down the hallway. 1:39 Maintenance, spare restrooms, the whole nine yards. 1:43 Pools right out back. Let's talk property details here. 1:50 76 units, three and four beds. LITC, which means we have some limitations on the rent temporarily. Now, our goal is not to remove tenants and not to jack 1:58 the rent on everyone. In fact, we love the people here. We love the community here. So, we're going to try to keep this as awesome as possible. We are going to do a better job on the actual maintenance and repair of the property. 2:08 There's a few things that need tweaking. 2:10 I would give the owners, the prior owners, a B minus. It's not bad. I've seen a lot of bad management. This is not bad management. It needs some 2:18 tweaking. There's a lot of work orders unanswered. 58 of them to be exact. When we do the 58, I'm expecting another 58 to come in from everyone else. When they 2:25 realize we actually do the work orders, what almost always happens is we get more work orders, which is fine. We want it, we want to set the tone for this is 2:34 what new management looks like. So, we're going to be doing some exterior repairs. I'll walk you through those. 2:37 I'll walk you through one of the units that is currently vacant. So, you can see one of our three beds and the current layout and what we're actually purchasing and looking at. But, this is 2:45 the type of real estate that I like to buy. Uh, the loan was $5.2 something million. It was direct through Fanny. So 2:52 this is called agency debt. 80% loan to value. The remainder of this was a syndicated structure. I like JVS, joint ventures, a lot more than syndication. 3:02 Why do we do syndication on this deal? 3:03 Well, I syndicated this deal, which means we bring in more than five partners, and there's general partners and limited partners. It's it's more legally intensive. The reason we did it 3:12 is because if you have more than five partners, every partner needs to be active. $2 million raise. I just didn't have two people who wanted to toss a million dollars at it. I had a lot of 3:21 people who wanted to toss $200,000 at it. So, just because of the size of the capital raise and the structure of the deal, that's what we went with. Uh, General Partners own 30% of this deal. 3:32 And we have an option at the end of this uh to actually be the end buyer when we end our project here. So, when we finish fixing it up, we go through our 5-year 3:39 hold period. uh me and possibly some of the other investors who are already on the deal can now take this out in a JV later. So, we're putting a pin in the map to have all the equity taking 30%. 3:50 Now, uh that is our structure for this deal. Cash flow is about $10,000 per month. Upside on this is 3:57 millions of dollars, like quite a few million dollars. It's not all about the money, though. 4:04 This project also gave me some of the staff that I needed to make my property management company better. It got us the right size in Stevenville, just under 4:10 200 units, which is fantastic. We actually have some influence on how we manage and we can really have enough income into the PM company to start to 4:20 cherrypick our staff and build the best possible company in our own base as we expand more third party to other people 4:27 in the neighboring properties. Let me show you one of the units. Come join me in unit 13 here. There's 13C, 4:36 19 buildings here on campus, uh, not including the clubhouse and other amenities. This is the main living area here. As you walk in, this unit is 4:45 almost ready. Needs to be cleaned, and there's still some maintenance, but this was a recent move out. They did a great job of keeping this pretty clean. Just needs to get uh tidied up. There's a lot of just general debris on the floor. 4:55 Carpets need to be cleaned or replaced, one of the two. The little back living area. And it looks out on this awesome campus. Look at this. This is the back door. This is what you look out on. 5:07 Come in. Wide open spaces. 5:11 Get the best of Texas out there. I think it's awesome. This is a three bed, two bath unit on the deal that again we 5:19 purchased $0 out of pocket. Uh the structure on this was awesome and the deal is just absolutely amazing. But one of the things I look at in units is what 5:27 uh what quality is it? Are there bugs walking around? Uh I'm not seeing too much. I found like one bug in one unit so far, but looks pretty good. Uh, 5:35 carpet's a bit gross, and I always try to eliminate carpet. We do have carpet here on the upstairs. We're not going to change it immediately, but as we renovate and get a little further 5:43 through the project, we'll probably start swapping it out. Again, three bed, two bath unit. Here's our starting point for bathrooms. 5:51 Toilet needs to clean. Shower needs a clean, but I don't see anything that expressly needs to be replaced. Might redo that sink. 6:01 Bedroom number two and bedroom number three. Now remember 6:09 this is a affordable housing project. So the steel is lit. The rents are capped. 6:14 I like providing great housing to great people. These are huge units. This is somewhere in an awesome town in a safe area, large units where I'd be willing 6:22 to live here myself. Doesn't mean that I'm going to live here myself, but in the same situation as any of my tenants, this would be an awesome place to live. 6:30 The overall communication I've had from all the tenants on this property is they love the community. They feel safe here. 6:37 They want to make sure there's no sweeping changes. Few little maintenance things on the exterior that we're going to get cleaned up. But this is what I like to see in a unit when I'm buying 6:45 buildings. No major projects. Simple TLC. Get it cleaned, get it prepped, get it online. 6:53 As far as you can see back there, forplex after forplex after forplex after forplex. Uh this is the outer loop. 13 and a half acre campus. So, I'm 7:02 walking this. I'm still blown away that I own this, by the way. We I mean, we just closed when I'm filming this. We 7:08 closed about 12 hours a No, 24 hours ago. That's bad math. About 24 hours ago, we closed on this property. So, I've owned this for just under one day. 7:18 But the thing just keeps going and going and going. 7:22 Everything back there all the way up the hill. 7:25 You see this thing on aerial view driving in little Tesla map. Crazy. Uh, one thing that I also noticed about this 7:33 campus, while it's affordable housing, everyone sticks to their parking spot. 7:37 There's no beater cars. There's no commercial vehicles just hanging about. 7:41 You end up with a really clean campus, well landscaped. This is the type of stuff where it tells me that owners did a pretty good job managing. Now, there 7:49 is stuff to clean up, especially in the front of the building. I'll show you guys the playground, the tattered flag that I'm all pissed about, the broken gutters. It's not perfect. They didn't 7:57 do a perfect job, but they did a really good job. We picked this up. 8:03 It's probably at about a 7 and 1 half out of 10 for where it should be maintenance-wise. And 7 and 1 half out of 10 is pretty darn good for me. I'm 8:10 very excited about this. uh how this deal actually came up, by the way. We bought a lite-ch property, 44 units, uh 8:19 senior living, but almost the same thing. Uh big campus, all fourplexes, big clubhouse in the middle, gym, 8:26 computer lab, all the normal stuff. Uh being a older folk home, the 44 unit has a bingo hall. This one instead has a 8:32 child care services and event space, a pool, and a busted up playground that we're going to be replacing. 8:40 By just walking the grounds here, you guys can hopefully get a little feel for just how big this is. I want to point 8:46 out that four years ago, I had four duplexes. It was almost 5 years, but a little less than 5 years ago. I had 8:54 sorry, four units, two duplexes, over 400 units today. This is how fast you can scale at a reasonable pace. I do three to five transactions a year. 9:04 Basically a transaction a quarter. And it only took that long. skill to buildings like this. I don't think there's anything special about me at all 9:12 because a ton of people have done this in multi family strategies mentorship too, but deals like this, they do come up and they're usually relationship 9:19 based. This one just happened to come off the back of a transaction that I did that was a little smaller than this $1.8 million purchase, uh, which opened up the way to do a $6.4 million purchase. 9:29 It's just baby steps, though. I bought a 38lex, I bought some twelves, I bought some 10s. I moved to Texas. I did the same strategy in another market. about a 25 26 44 the 76 here. 9:42 These were all little steps though. It didn't take a long time to get here. It just took a minute. It just took a few transactions. I think for most of you if 9:50 you are getting started or you have your first few rentals, this can feel 76. I think this is the first one I've done where it's like this starts to feel 9:58 unattainable to a few people and it would have felt unattainable to me not that long ago. So, my encouragement to everyone, this isn't the biggest deal you could 10:06 do. It starts to feel pretty cool this size. I'm still in awe that we own this particular building. So, that's the 10:15 exterior of the campus. That's the courtyard. Let me walk you guys over. I'll see you guys at the playground. 10:20 Welcome to my least favorite part of this project, the playground. This little beater playground here. Uh they 10:27 finally got the bricks out of the out of the uh the main area here was covered in bricks. That slide, I'm not thinking that's a good angle. In 10:36 fact, I tried going down that in the rain. Uh very painful. This is a liability. It's an accident waiting to happen. And this is going to become a 10:43 dog park right here. We're going to take a much bigger playground and build it in the middle of that courtyard. Those are our big tattered flags. Here's the main problems with this campus. There's no 10:52 advertising. You come in, you see an ugly playground, ugly slides, the ugliest stuff in the whole entire campus 10:59 is right there in front of the leasing office, which is insane. You come back, you have this beautiful pool. You have a great setup. You have a beautiful campus. You have ready to go units. 11:10 There's no for lease sign. There's no number to call in front of the property. 11:14 There's nothing that clearly states that you can rent here. 11:18 on a marketingless property that stays almost fully occupied all the time. This could be doing so much better and it can look so much prettier. So, replacing 11:26 those flags today, period that is happening. I'm not leaving Stevenville without that done cuz just general respect for our country's flag. That 11:34 thing is terrible back there. I don't know how well you can see that, but it is just like it's dead. 11:42 We're going to get that cleaned up on with our project.
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