Apartment Walkthrough: How $350K of CapEx Became $500K

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0:00 Welcome back to Multif Family Strategy.
0:02 I'm Christian, your channel host. Today
0:03 we're at a 30-unit building. I'm doing
0:05 an initial walkthrough. We have a letter
0:06 of intent signed for this property.
0:08 However, we do not have a signed PSA.
0:10 So, we're making a decision today. First
0:11 thing I'm noticing, the parking lot is
0:13 patched and very lumpy. We're going to
0:15 want to repave that as part of this
0:17 project. So, we're going to make sure
0:18 it's part of our budget. But, we're
0:19 going to do today is walk through and
0:21 decide, are we officially going to buy
0:23 this or not? Now, conveniently for me,
0:25 Weatherford, Texas is on the way to
0:27 Steamville, Texas and Abalene, Texas,
0:29 where I own multiple hundred units in
0:30 each market. So, while it's only a
0:32 30-unit building, this makes a ton of
0:34 sense in my portfolio if the deal works
0:37 out after today's walkthrough. All
0:38 right, the camera crew couldn't make it
0:39 today, so you guys are with me in selfie
0:41 mode. So, bear with me. This is studio.
0:43 These are the efficiency units. They're
0:44 apparently the least nice of the units
0:46 we're going to see today. It's not the
0:48 worst. Now, this is dated. This is
0:49 entry- level housing. So, this
0:51 particular project is not going to be
0:52 our fanciest. This is like true class
0:54 C++ and we're a little out in the
0:55 country. Uh layout-wise, I don't hate
0:57 it. You actually have a pretty big
0:59 living area. The floors are in good
1:01 condition. The countertops are nice and
1:03 they did my favorite little thing. The
1:05 appliances all match. White appliance,
1:06 white appliance, white range. This just
1:09 looks a lot better than a lot of units
1:11 that I've seen. One thing we would
1:13 definitely swap when we bought this.
1:14 Check this thing out. That vanity, it's
1:17 hard to It's really hard to emphasize
1:19 this. I'm sitting on the floor. This
1:20 thing is just above knee height. This is
1:22 like the Teimu children's playhouse
1:25 vanity. I've never seen this low of a
1:27 vanity in my life. So, we will uh yeah,
1:31 we'll definitely be swapping that. I
1:32 don't think I can get my camera to do it
1:33 justice, but it is tiny. On to the next
1:36 unit. All right, our one bed is looking
1:38 a heck of a lot better. So, I'm in here.
1:40 Uh actually pretty big floor plan. The
1:42 ground is completely level. The floors
1:44 are relatively new, which I do like
1:46 quite a bit. Never a fan of the popcorn
1:48 ceilings, which you guys can probably
1:50 barely see up there at the right angle.
1:52 It's clean, it's simple, it's tidy,
1:54 which is what I want to see in here. The
1:55 bedroom's actually ginormous. You'd be
1:58 very comfortable putting a king-siz bed
2:00 in here. Uh, for context, I'm like 6'1,
2:03 so being in this room here, uh, this is
2:07 actually quite a bit of space. I like it
2:09 quite a bit. Walk-in closets. The
2:11 windows are all old. I did notice this.
2:13 This is the type of stuff you always
2:14 look for in a walkthrough, but check
2:16 this out. Water heater is in good
2:17 condition. It's hooked up correctly. No
2:20 drip pans. If this leaked, it's going to
2:22 cause damage. It's the little things
2:24 that I'm looking for that I It's just a
2:27 bunch of yellow flags. No red flags. I
2:30 also noticed in this particular unit,
2:33 the cabinets are on the older side. This
2:36 is one where we update. We'll go ahead
2:39 and pull out some of these and we'll
2:41 refresh. This isn't a super expensive
2:43 kitchen to redo. Well, this one thing I
2:45 really like about simple floor plans is
2:47 you can actually elevate them quite a
2:48 bit without breaking the bank, but it
2:50 does need to be budgeted for. Onward.
2:53 Call this the gutter garden all the way
2:55 down. These haven't been done. Again,
2:59 not red flags, but when you see stuff
3:01 like this, what other little things
3:03 aren't done? It just factored into your
3:05 math for overall condition of building.
3:07 It's pretty good. All the big things are
3:09 done. A lot of the little things need a
3:11 little TLC. So, this is really good to
3:13 know when you're evaluating any
3:15 transaction. Another great example, this
3:18 is a fire extinguisher. It is correct in
3:20 the right spot. It is out of date by
3:22 about 6 months. So, again, not major red
3:24 flags, but we are are noticing some of
3:26 the blocking tackling isn't quite done
3:28 up enough. Not a big deal. Something to
3:30 track. This is a bonus. US mail. I want
3:32 to see this on the mailbox. This means
3:34 that the post office manages this. I
3:36 have a bunch of them that are privately
3:37 managed and when they get damaged, we
3:38 have to fix them. In this case, US
3:41 Postal Service will actually be the one
3:42 who manages our mailboxes for us. You
3:44 don't think about that unless you own a
3:45 bunch of properties. But man, when you
3:47 own a bunch and you don't have to deal
3:48 with the maintenance for the mail, it's
3:50 really nice. Little bonus. By the way,
3:53 it is finally out. The book on creative
3:55 real estate. The link is below. You can
3:57 actually pick this up right now, but
3:58 it's how I bought deals like this one
3:59 and deals all over the country. I go
4:01 through the actual stories, the
4:03 structures, but this isn't theory. This
4:05 isn't some gimmick or a one-sizefits-all
4:08 strategy. the actual strategies that I
4:10 utilized and how they were implemented
4:12 to close every single deal. You can
4:13 check it out on Amazon right now. Links
4:15 below. AC's are looking to be in decent
4:18 condition, but they are all older, so
4:19 we're going to factor for having to
4:20 replace a few in the first year. So,
4:23 that will fall into our math as well.
4:25 Again, these are two of the worst two,
4:27 so it's not horrible. Uh, they're
4:29 certainly all working. They're also not
4:31 new. Pay attention. I'm going to save
4:32 you a ton of money here. So, I'm going
4:34 to turn on the fan in the bathroom. Do
4:35 this every time. I don't know how well
4:37 you can hear that, but I'm guessing
4:38 probably pretty well. I'm going to bring
4:39 my mic up to it.
4:45 When you have a super loud fan, what
4:48 happens? It's not even that it doesn't
4:50 work, it's that the tenants won't use it
4:52 because it's obnoxious and then you get
4:55 moisture and then you get mold. Now, I
4:57 invest a lot in Washington state where
4:58 it's a high moisture state. So that
5:00 means, yeah, we get a lot of mold
5:02 problems when we have this fan problem
5:04 in Texas, especially in Houston, uh,
5:06 which I own a few properties in. Mold
5:09 when it takes off, it explodes because
5:11 of the humidity. So, if you hear a bad
5:13 fan, replace it. You should service
5:15 those every single year. It does not
5:17 take a lot of work. You can get them to
5:19 last basically forever. If you fail to
5:21 service them, you'll start losing money
5:23 and it will be a major maintenance
5:25 headache. It's one of the cheapest
5:26 things that can save you a ton of money.
5:28 And the last vacancy we're checking out
5:29 today, there's a couple of things here.
5:31 This has like three layers of paint on
5:32 it. Instead of replacing countertops,
5:34 they're painting countertops. Uh, that's
5:36 a huge pet peeve for me. So, we're going
5:37 to go ahead and if we buy this, we're
5:39 going to budget to replace these as
5:41 tents move out. It works fine. It's
5:43 functional if you live here, but I want
5:46 those to be nicer. So, on you in terms
5:47 of we're going to budget for redoing
5:48 some of these kitchens. And they did my
5:50 personal biggest pet peeve. Black
5:52 refrigerator, white appliance. Yeah, it
5:55 just looks tacky. Don't do it. They cost
5:56 you the exact same to set them all up
5:58 the same. Just get the appliances to
6:01 match. If you're going to go black, go
6:02 black. If you're going to go white, go
6:03 white. But make them all match. Another
6:05 thing to look for on the exteriors. That
6:08 does not quite work as well as you think
6:10 it might. Does in fact need to be
6:11 connected. That's obviously a super easy
6:13 repair. It goes back to that block in
6:15 tackling I mentioned before. The little
6:17 things aren't done right. You're going
6:18 to find more after you close. I promise
6:19 you that. Yeah, I have some concerns
6:22 about the construction of that porch.
6:23 That would have to be redone. Check this
6:26 out. Breaking at the wall covers missing
6:29 under here and there's some debris. So,
6:31 I'll hop under the building here in a
6:33 second, but that's kind of leaning
6:35 funky. So, good to note. Okay,
6:37 conveniently, my camera can get down
6:39 here so I don't have to get as deep
6:40 under the building. Not as bad as I
6:42 thought, but there's a good deal of
6:44 debris down here. So, I'd actually do a
6:45 quick underbuilding cleanup cuz you see
6:47 carpet down there, wood debris.
6:52 This This needs a little bit of love
6:53 underneath here as well. into the next
6:55 building. It looks like it's pretty much
6:56 more of the same. Good deal of debris.
6:59 The insulation's down. So, when we do
7:01 the full inspection, I'll make sure we
7:03 pay extra attention to under there. I
7:05 don't pretend to be a specialist in
7:06 every single piece of the property. Uh,
7:08 but I know enough to be dangerous. So,
7:10 looking under there, I know I want to
7:11 get a second set of eyes while under
7:14 contract. And we'll need to seal all
7:15 those off. I really don't want animals
7:16 living inside and under the buildings.
7:18 You guys can see this.
7:20 Zoom in on this bad boy.
7:23 So up there,
7:25 lot of rotting trim. Again, not a
7:29 massive massive massive red flag, but
7:32 we'll call that a uh we'll call that a
7:34 hard yellow. I'll move over these here,
7:36 too. See those big cracks at the seam?
7:38 They're just sighting issues that need
7:41 to be addressed. Uh when we're doing
7:43 these, you just want to document all
7:44 these. I've seen people buy buildings
7:46 without doing [music] the little things.
7:47 They don't account for them. It will add
7:49 up to a few hundred,000 a project. that
7:52 if you didn't do this part, you wouldn't
7:54 have accounted for. Also, check this
7:56 out. So, this is done with a 4x4 post
8:00 and a 4x4 post like a normal adult.
8:03 However, this one has been repaired by
8:06 whatever the heck this is. You see this
8:08 thing falling off the building? Here's
8:09 why. Your support beam is sitting on a
8:11 cracked brick and it's a little 2x4
8:14 thing. I mean, it's like it's like a
8:15 it's propped up on twigs. Here's the
8:17 original post. Why they would cut it and
8:19 rebuild it incorrectly, I don't know.
8:21 But what it's causing, it's causing it
8:23 to rip out of the building. So, this
8:25 damage here is actually caused because
8:27 they built this thing completely wrong.
8:28 This is a significant health and safety
8:31 violation. Uh, if you had a tenant, this
8:33 breaks off and a tenant gets injured,
8:35 uh, you're actually looking at liability
8:36 here, so that must be fixed. So, what do
8:39 we learn from today's adventure? Well,
8:41 the first thing we want to repave the
8:42 parking lot, but the big lesson
8:44 throughout, and what you probably saw in
8:45 this, is that a lot of the little pieces
8:47 weren't done. So, when you see that the
8:49 porches weren't done correctly, there's
8:51 junk under the building, the gutters
8:52 haven't been cleaned, the fire
8:54 extinguishers haven't been done, and so
8:56 on. When you find all these little
8:58 problems, you're going to find more
9:00 after you close. We tallied it up, and
9:02 what we estimate is about $250,000 of
9:05 actual work that needs to be done to the
9:07 property. Probably a hundredish,
9:10 we'll get that actually quoted, but
9:11 rough numbers. 100,000 to actually get
9:14 all the paving redone and done correctly
9:16 so that the parking lot stays really
9:17 nice, really clean. And then we'll have
9:20 to turn some of the units. We're
9:21 allocating about $500,000 for our
9:23 initial going in math. So the next step
9:25 here on this deal, we had an accepted
9:27 letter of intent for a deal that looked
9:28 absolutely stellar. We factored for
9:31 about 350,000 our original math. So we
9:33 need to increase that number by another
9:35 150. Go back, rerun the numbers. What
9:37 I'm expecting because this was a stellar
9:39 deal is that's going to move from being
9:41 a stellar deal to a really good deal.
9:43 We're probably still going to buy this
9:45 as the numbers are probably still going
9:46 to make sense and it's on the path to
9:48 both Stevenville and Abene where I own
9:50 quite a few buildings. So, this makes a
9:52 lot of sense geographically. It just
9:54 needs to work financially. Now, if
9:56 you're unsure on the numbers, it's never
9:58 painful to be more conservative. Uh many
10:01 times you're not conservative enough.
10:02 Never force one of these deals to work.
10:04 Uh that being said, we're going to rerun
10:06 the numbers uh tonight. I just got home
10:08 from the field, so welcome back to my
10:09 studio. Uh but I'm going to be going
10:11 through uh each and every number again
10:13 and we'll make a decision tonight or
10:15 early tomorrow morning. The key on this
10:17 with brokers, get out there, do the
10:20 work, make decisions fast. If we sat on
10:22 this for 3, four, 5, 6 days, and then
10:25 went, "Ah, you know, I think we're ready
10:26 to move forward." Someone else could
10:28 already take this deal. We have a signed
10:30 letter of intent. That being said, they
10:32 have two people in backup and the
10:33 seller's ready to select their final
10:35 seller. The seller's looking to find
10:37 their final buyer. Now, conveniently,
10:39 I've worked with this firm before, the
10:41 brokerage firm. They have two other
10:42 buyers. One of them is a high volume
10:45 buyer, which means they're a pretty good
10:47 buyer. They transact often. One of
10:48 them's a lower volume buyer. So, they've
10:50 ranked us as their most able and willing
10:53 candidate as they've worked for as
10:55 they've worked with us. And we've closed
10:57 every time we've worked with them. So,
10:58 we have a track record, we have volume,
11:00 we have properties in this area, we have
11:01 the experience to turn this around. The
11:03 question is, since it's a little bit
11:05 more cosmetic value ad than I wanted to
11:07 do, uh, is it a deal that makes sense,
11:10 which is the question for us? Now, what
11:12 you don't need to do on this is you
11:13 don't need to nail every single number.
11:14 You don't need contractor quotes for
11:15 every piece of this. You need rough
11:17 numbers to make a decision. The next
11:19 phase is feasibility. You go under
11:21 contract, you deposit earnest money. In
11:23 this case, we'll have 30 days to do all
11:25 of our due diligence, check the books,
11:27 check the maintenance, get an official
11:29 inspection. We'll have them check the
11:31 septic field, which we did not have a
11:33 chance to get into today. Uh, but we'll
11:35 actually have them come out, run a full
11:37 septic inspection, and we'll get more
11:39 detailed quotes and fine-tune that
11:42 budget. But right now, going in, we have
11:43 a rough number of half million of
11:46 capital expenditures to get these 30
11:48 units where they really need to be. If
11:50 the deal works on those numbers, we move
11:52 to the next phase, then to feasibility.
11:54 Then we finish lining up our debt
11:56 product, which we're already working on,
11:58 and we line up the rest of the equity.
12:00 This will be uh capital to close this.
12:02 We're probably only going to need one or
12:04 two partners. We'll do this as a joint
12:05 venture with a few other people after we
12:08 vet the deal and know what we're getting
12:10 into all the way. But those are our next
12:11 steps. This is what it actually looks
12:12 like to do these in the field. Hope you
12:14 learned a lot, and I'll see you on the
12:16 next episode.