EP174: Cracking the $77,000,000 Code: What Does it Really Take to Purchase One?
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Today is all about buying a MASSIVE real estate project!
That’s right, the kind that is tens of millions or even hundreds of millions of dollars.
Sound like a lot?
That’s because it is. 🤩🤩
Numbers like that can be hard to even wrap your head around, but in today’s episode, we are going to break down what it took for us to purchase a $77 million multifamily apartment – when we didn’t even have that in the bank. 💋
Sound impossible?
It’s not, we did it and you can do it too, so let’s get into it.
Laying the Groundwork
Let’s get one thing straight: real estate investment isn’t just for billionaires. 😆😆
It’s all about using smart financial tactics, making the most of what you’ve got, and taking advantage of what banks and other financial institutions have to offer.
So, let’s start by talking about the basics of equity and debt financing.
Building Your All-Star Team
If you think this is a solo act, and you’re picturing this whole process as a one-person show, we need to set the record straight. It’s a common misconception that real estate investing, especially at this level, is a solo act.
But here’s the reality check: 🏢 multifamily apartment investing is more like the 🏈 Super Bowl than a one-man band.
You wouldn’t expect a quarterback to tackle, kick field goals, and cheerlead all by themselves, right?
Similarly, a successful real estate investor needs a talented, diverse team to cover all the bases and bring their A-game.
So what’s the difference about buying a $77 million multifamily apartment complex compared to grabbing a cozy one-bedroom condo?
It’s a whole different ball game…
We’re talking about a colossal undertaking that demands expertise in various areas.
So, let’s take a moment to meet the awesome crew who will be your partners in crime on this exciting journey.
👉 Alright, let’s kick off with the broker, your ultimate star quarterback in this game.
This person will be your right-hand person, collaborating closely with you to scout out potential deals and hammer out the best terms.
Their market smarts, top-notch negotiation skills, and extensive network in the real estate realm will be worth their weight in gold. ✨
They’re the ones who can unlock hidden opportunities and help you navigate the twists and turns of the multifamily investing arena.
👉 Next up, let’s talk about the lawyer.
Think of them as your MVP coach when it comes to legal matters. When you’re dealing with properties worth millions, having their sharp legal expertise on your side is crucial.
They’ll guide you through the maze of complex contracts, ensure you’re meeting all your legal obligations, and help you assess potential risks. Just like a seasoned coach, they’ll have your back and make sure you’re playing by the rules to secure that winning touchdown in the multifamily investing game.
👉 Now, let’s talk about the accountant, your strategic offensive coordinator in the financial game.
Just like a pro coach, a skilled accountant will be by your side, guiding you through the twists and turns of financial implications.
They’re the masters of maximizing your tax benefits, helping you plan your cash flow effectively, and making sure your financial statements are spot-on and up-to-date. With their expertise on your team, you can rest easy knowing that your financial game plan is solid and your money is being handled with precision and finesse.
👉 But let’s not forget about the property manager, your diligent defensive coordinator in this game.
Picture them as the rock-solid force that keeps your multifamily property in top shape.
Just like skilled defensive coordinators, they handle everything from tenant acquisition and relations to maintenance and rent collection.
Their job?
To make sure your property is running like a well-oiled machine, keeping both your tenants and your profits happy. 😋😋
With their expertise and dedication, you can rest assured that your property are in good hands, tackling any challenges that come its way and ensuring a smooth and profitable operation.
👉 Last but not least, let’s talk about the investors and partners—your team owners and sponsors.
These folks are the ones who provide the financial firepower and share in the risks and rewards of your real estate venture.
Think of them as your team’s biggest fans and supporters.
Building strong relationships with your investors and partners is absolutely crucial for the success of your real estate journey.
Just like in any team sport, trust, open communication, and collaboration are the keys to victory.
So, make sure you nurture those relationships, keep them in the loop, and work together to achieve those big wins in the multifamily investing game.
Now, here’s the deal: every player in your team plays a crucial role in making this whole operation run like a well-oiled machine.
By assembling a group of experienced professionals, you’re tilting the odds in your favor and making what might seem like an overwhelming task way more manageable.
Trust us, when you’ve got these skilled teammates by your side, you’ll be amazed at how smoothly things can go.
So, get ready to witness the power of teamwork and watch as this seemingly insurmountable challenge becomes a series of conquerable steps.
Deal Structuring – The Backbone
Deal structuring is a fine art.
We consider economic trends, interest rates, and details to make deals work.
Good debt is a powerful tool in real estate.
Take, for example, the scenario of purchasing a whopping $77 million multifamily apartment complex. 🤟
You don’t need to have all that cash upfront. Instead, strategically utilizing debt can be your ticket to making such a significant purchase.
Now, in today’s economic climate, we’ve got a star contender: non-recourse debt. Think of it as the team player who’s got your back.
This type of loan doesn’t require a personal guarantee.
In other words, if things don’t go as planned and the investment doesn’t pan out, the lender can only take the property.
They can’t come after your personal assets.
With interest rates currently hanging out at historically higher levels, you want to lock in a fixed interest rate. Think of it as your insurance policy against the wild havoc that rising interest rates can wreak in the future.
Securing a fixed interest rate brings a whole lot of benefits to the table. ❤️
It brings a sense of predictability to your cash flow, allowing you to plan ahead with confidence. No more sweating over unexpected fluctuations in your monthly payments. Plus, it acts as a safeguard for your returns, shielding them from the ups and downs of the economy.
Something else you’ll want to think about is prepayment penalties.
The lower the penalty, the better.
Why? Well, sometimes, unexpected opportunities arise where you might want to refinance or sell the property.
But guess what? A hefty prepayment penalty can swiftly eat at your hard-earned profits. 😓😓
Now, let’s pull back the curtain on our $77 million acquisition.
We didn’t stumble upon a magical rabbit in a hat or discover a mysterious money tree.
No, we took a more strategic route: a HUD loan assumption.
We get it, that sounds super confusing 😣😣, but hold off on scrambling to Google it just yet because we are going to explain what that means for you.
Here’s the scoop: with the loan assumption, instead of taking on new debt, we decided to step into the seller’s shoes and take over their existing loan.
It’s like a relay race, where the seller passed us the baton (or, in this case, their original loan), and we took off running.
Now, you might be wondering why we went for this unconventional route. 🤓🤓
Well, it all comes down to the type of loan we’re dealing with a HUD loan.
That stands for Housing and Urban Development, and it’s backed by the U.S. government and comes with some pretty awesome terms.
For this particular investment, the HUD loan assumption presented us with an offer we couldn’t resist: a fixed interest rate of 3.49%. ⭐
Trust us, even the most hard-hearted lender would struggle to match that rate on a new loan in today’s market.
The HUD loan assumption was a strategic move that gave us a real edge and highlighted the importance of understanding all the financing options available to us.
Rallying Partners and Investors
Attracting investors requires precision, rhythm, and a whole lot of charisma.
First things first, we broke down the numbers and showed them the potential return on investment (ROI).
We laid it all out, making sure they saw the exciting financial prospects that lay ahead.
But that’s not all.
We also knew it was essential to address any concerns or fears they might have had about perceived risks.
We calmed their nerves, provided reassurance, and gave them a clear picture of how we planned to mitigate those risks.
But we didn’t stop at just numbers and risk management.
We presented them with a compelling strategic vision for the property.
Let’s take a break from the investor side of things and shift gears to a key element that keeps the real estate investment machine running smoothly – raising capital. 🧡🧡
Every investor has their own unique strategy when it comes to this game.
As for us, the Kitti Sisters, we’ve taken a route that aligns perfectly with our core values and philosophy.
Instead of seeking funding from corporate giants, we turned to individual investors who truly believe in us, trust our vision, and value our expertise.
It’s not as simple as swiping right on a dating app or handing out flyers at a garage sale when you’re cultivating genuine, meaningful relationships.
In our $77 million venture, we managed to raise over $38 million from these private investors.
But here’s the real truth: the true heroes of this story are our passive investors.
They chose us and decided to back us when they could have easily picked any other investment opportunity out there. We are incredibly humbled and grateful for their trust and unwavering commitment.
Mastering the Art of Negotiation
Let’s discuss the art of negotiation.
Purchasing a multi-million dollar property is a whole different ball game compared to say, buying a car. 🚗
It’s not as straightforward as walking into a dealership and driving away with your dream ride.
Nope, it’s a complex journey filled with legal intricacies, meticulous due diligence, and in-depth financial analyses. Not only that, but in the realm of multifamily apartment investing, negotiations are more like a three-phase dance.
First, we’ve got the Offer Phase, where we put our cards on the table and make an enticing offer.
Then, we move on to the Purchase and Sale Agreement (PSA) Phase, where the nitty-gritty details are hammered out and put into writing.
And finally, we enter the Under Contract Phase, where the deal is locked in, and we make sure all the i’s are dotted and t’s are crossed.
Post-Closing – The Property Management Symphony
But don’t forget about what happens after you seal the deal. In fact, the journey is far from over – it’s just getting started. Now, let’s dive into our property management strategy and shed some light on what goes on behind the scenes.
Once the ink dried and the deal was in the bag, the property management team stepped onto the stage as the conductors of this investment performance.
They hold the power to determine whether your investment soars or falls flat.
These guys interact daily with your residents, ensuring everything runs smoothly. 😘😘
Their performance can make a huge difference in the success of your investment, so choosing the right property management team is absolutely crucial.
The Big Picture
The key lesson we’ve learned from our incredible venture is this: buying a property worth $77 million isn’t just about having $77 million in your pocket.
It’s about strategic planning, forging strong partnerships, and establishing resilient financial structures that can weather any storm.
That’s the secret sauce to making it in this game.
Our goal with this episode was to unravel some of the complexities of the process, and to shed light on what it really takes to dive into the world of multi-million dollar properties.
We hope it has been insightful for you, and we’d love to hear your thoughts and answer any questions you may have.
So, don’t hesitate to send us your questions or comments – we love engaging with you.
And hey, if you found this episode helpful and informative, we’d greatly appreciate it if you could leave us a raving review 📝 and share it with your fellow real estate enthusiasts.
Let’s spread the knowledge and empower each other on this exciting journey. 🙃🙃
Until we meet again, keep making smart money moves and stay financially savvy! 🌈
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