How Stephen closed a 51 unit apartment deal with no experience

Hey guys, it is Jonathan and I have my good friend Stephen here. We are back on the REI accelerator podcast and today we have a very special treat where we are going to be sharing Steven's story of how he bought a 51 unit deal. Never doing any major deals before and doing it all within a couple weeks or at least identifying in a couple weeks, getting it locked up in a few weeks and then closing on contract in less than four months. So if you're excited for that, let's rock and roll again. Our podcast here is all about helping real estate investors scale their portfolios through syndications and creative financing. Are a faith based community of real estate investors. So we care about impact as much as income and our goal in this podcast, the reason we created it was because we understand there's a few roadblocks for real estate investors to truly scale in apartments and really replacing your income or doubling your income within any amount of time. That is quick. Right? So what are those things? Five finding deals, raising capital and understanding how to structure deals to be able to truly scale efficiently and make the most out of your deal. So what we want to do is tackle it. How do we find the best off market deals on the market and how do we raise capital? Even if you're brand new and I would add as much content as we have on raising capital, the biggest thing needed in my opinion is finding really good deals. I can't tell you how many people I talk to every single day and or every single week that are saying I have capital to invest. Just this morning I was, the guy has a million dollars, wants to invest as a limited partner and, and they just need good deals. Good deals are the biggest thing. Now there are obviously people who don't know how to convert limited partners. So we'll talk about that or how to find limited partners and investors. So we'll talk about that. But let's get into today's show. Stephen, thank you so much for being here.

Thank you, Jonathan, appreciate it.

Yeah, so let's get into it. I'm just going to, we're just going to dive in because let's, let's start with, you know, how do you arrive at re accelerator? How did we start working together? Like what happened? But bring us through that deal that you took down.

Yeah, absolutely. So just by way of introduction, I'm pretty busy as it is. Before I got investing in real estate. I'm a husband, I'm a father of three with one on the way. I'm very active in my church as a Deacon. As a chairman of our deacon, board chairman of a private Christian school, I had a lot going on going into it. And about three years before REI Accelerator, I had started to invest in multifamily real estate, obviously at a much smaller level. So I was really attracted to REI Accelerator being a faith based group, just a great team. The biggest attractive quality about it was, you know, being able to scale up into apartments because up to that point I'd done single family, I'd done, you know, a couple duplexes, a triplex, but never been able to scale into an apartment. So once I took the educational material and digested it from REI Accelerator, began that process, I started to apply that and kind of roadmap the model that REI Accelerator has on my real estate buy box, which happens to be in New Hampshire. I live in New York, but New Hampshire is where I had been buying and investing. And so I knew that area really well. So for me, I was able to find one within a few weeks that met the criteria. You know, was able to do the analysis on that and, and show that it would be profitable, even bring in limited partners and providing a preferred return. So how I found it, this one was on market, although there's huge advantages to finding one off market. And yeah, just because I knew the area very well and I knew the numbers really well, I was able to apply REI's model to my local buy box.

Let's go. That's exciting. Yeah, yeah. So with the 51 unit, can you kind of break that down?

Yeah, absolutely. So I'm going to share my screen a little bit here for those of you who are watching on video and just show exactly what that is. And so the area, of course, is in Hillsborough County. It's the largest, most populous county in New Hampshire.

How did you find it?

So this one was on market. I was able to find it just through my network of real estate agents that I've been working with over the past few years. And you know that that has some downside to it because if you're working in a market that's very competitive, such as, you know, the Sun Belt, for example, you may not be able to find stuff on market that commands the type of incomes that you're looking for. But New Hampshire is kind of a diamond in the rough. There's not as many people looking there because, you know, the population isn't enormous. You know, it's kind of an area that not too many, you know, large investors are looking at. And that's a good opportunity for you to Come in and find value. So that's, that's why I was looking at Hillsborough county in particular.

And you, you found it. Was it a pocket listing or was it actually on market?

Like this one was actually on market.

Okay, cool.

Yeah. So, you know, and there was, I'm kind of showing up on screen here, but there's a lot of advantages to New Hampshire. The rents have just over a 10 year period have just continued to go up. You know, it's, it's rural, but it has low crime, low unemployment, good middle class income. It's just a solid place to invest at because not too many people know this, but New Hampshire, their laws are just not very conducive to multi family expansion. They're not just throwing up apartment buildings left and right. So you just have a very stable base to move from in terms of being able to predict how you can fill units, what kind of rents you can command. So that's, that's why it kind of honed in on that area. But the property itself, 51 units split over three different apartment buildings and all within the same county. It was a mix there of mostly two bedroom units, but some one bedroom and a couple of two bedroom units total. And all the units were currently rented, although much lower than I would need in order to be profitable on it. But I knew where I wanted to take the property, what kind of rents I could achieve on it. And therefore, you know, I'm able to offer a pretty good preferred return to the investors who come in on that.

That's awesome. Yeah, yeah, that's exciting, man. So the purchase price was how much?

So the purchase price was 5.7 million. And then we wanted to add in a good amount for improvements that, another 273,000 for improvements, you know, and so all together the total cost was a little bit over 6 million that I had to raise. When it came down to it, you can see here total costs I have on the summary, the deal summary here was 5.9, but total ended up being a little bit over 6 million for everything.

Okay, so over 6 million. And how much did you raise before this?

So prior to this deal, the most I'd ever raised was just one single private investor, about 300,000. So I had to raise about $1.65 million in order to close this deal up. So we were in contract by May. The whole thing was closed up by the end of August and I had to raise 1.65 million. I'm kind of laughing because at the time it really did seem so unbelievable, you know, and I kind of didn't, you know, have perfect faith that it was all going to work out by the end. I had to be encouraged. Jonathan, you. You were there for some of the phone calls to just tell me, hey, it's going to happen, it's going to work, you know, And I'm smiling ear to ear because God just blessed it so much and helping me to find the right limited partners in just enough time to make it happen where it was clear, you know, God's hand of blessing was upon it.

Where there's a will, there's a way. And God also just. Yeah, he touched it, so that's awesome, man. Congratulations, dude.

Yeah, thank you, brother.

That's really exciting. And so you raised 1.65. And now, I mean, lessons learned. Let's just talk about that. What are the big lessons? You. You would feel like someone's brand new. Maybe they haven't even raised 300,000 or maybe they haven't even closed it. What. What would you tell them? Like, what. What are the biggest lessons? I feel like up to this point in the deal, you. You would kind of tell somebody at this point.

Yeah, so. So one of the. Probably one of the primary things, if we could go to just like a macro level lesson on all this, is going into it with the right mindset and being at the right place to do things ahead of time. For me, that was there, that was in place, and it proved to be enormously helpful because that's what carried me through all the ups and downs of going through the deal. Times of discouragement or times where, you know, it didn't. You didn't quite see a way forward. Having the right team around you helps with that mindset too. But you have to be decisive. You have to decide, like, hey, this model works. It clearly, you know, can work, and this is what I'm gonna do, and this is how I'm gonna be successful with this. So you have to be decisive. You have to be committed to moving forward with it. And, you know, I'm so surrounded by great family, a great wife, supportive, great church. That's supportive, great team with REI accelerator, so all that you need. You know, going into this, I feel like it was probably the most important thing, and fortunately it was there for me. So that's one of the main keys to success. I think, also just knowing how extensive your network really is. I had told you at the beginning, hey, I've tapped out all my. All my contacts, and that wasn't true by a long shot. Because Most of that 1.65 ended up being, you know, people that I knew within my network that I could raise from that. You know, I just turned out, you know, they were, they, they had capital on the side. And that's, I think, part of. Sometimes in the Christian community, we underestimate how much capital is here with fellow believers that do want to profit from real estate, that see the value in that. And, you know, you can create a win, win situation with those people where they're helping you and you're providing a solution for them in a time of, you know, high interest rates and instability in the economy. So, you know, that. That's another big lesson from this. All too. It's been a key to success.

Yeah. And can you break down what is an acquisition fee?

An acquisition fee is, is simply all the work that you put in for acquiring the unit. You know, you as the general partner who puts it all together and does all that work and takes all that risk and is, you know, putting in the good faith deposit on the property and, you know, all those critical things that need to happen in order to put everything together, get rewarded by the acquisition fee too. That's a way of seeing an immediate, an immediate profit from the investment. And so at closing, you get to take that acquisition fee. It's something that you clearly disclosed. All the people who are coming on as limited partners, I never had a question about it. I've never had anybody kind of, you know, you know, say that it was unfair in some way or anything like that, because they see how much work goes into you doing the analysis on this and you being the person who's ultimately responsible for the property.

Yeah. And you know, I bring that up because there is that idea like what we teach in our accelerator is, is actually kind of a unique structure in the way we're buying apartments now, you know, depending on who you are, you may think it's unique or not, but the traditional model is, you know, like a 7030 split in favor of the limited partners. Of course, that's a different model. That's, that's typically, you know, more stabilized properties, stuff like that, but. Or more market rate properties, not as much value add. In our model, we're kind of flipping that in a sense, and we're saying the GP is kind of. And people could kind of wonder, well, how, how you, how are you justifying that? Well, because we're looking for opportunities that allows us to be in at a strong discount. And then you play the tape all the way through and the limited Partners are actually doing better in our deals than they are the traditional model. Yes, you play the tape, because we're also Talking about a 2, 1, 2 max, 3 year play where we will refinance at year 1, 2 or 3, pay out our investors so they get all their money back plus, you know, whatever they retain in terms of equity, percent and, and then plus the refi proceeds, all that kind of stuff. And because it's a value add, these deals are making, you know, a couple million within the next, within, you know, the first couple years. So the way we're structuring this actually is more advantageous to a limited partner. And so then you also ask, well, why would just me bring in the deal to the table, allow me to get a $115,000 in an acquisition fee? Because that's the stellar thing, if you think about it, from somebody who's never done a deal before, and then they can go find a deal and based that, within four to six months, they could actually make 100 grand or more in an acquisition fee. Some people say, what? How can I do that? Well, think about it. How much do people get paid in today's market where you can provide an opportunity for someone to double their money in the next five years or for someone to create 20, 30% annualized returns on their money, for someone to bring a deal like that to the market and four, bring an opportunity like that to investors, that person should get paid pretty good. And so anyway, I just wanted to touch on that because I hear that a lot and I think it's just a mindset that needs to be shifted.

Yeah, that's, that's absolutely true. And I, I didn't have anybody really quibble with me or even, you know, probe that too deeply just because they understand the value that they're getting out of it. And, you know, I think that's also part of being selective about your limited partners that you're bringing on to is people who understand where the value is coming from, how you're going to help them grow in the future. So they're not, they're not looking at, you know, that acquisition fee and saying, you know, well, you don't deserve that in any way. They're looking at that and saying, you know, that's justified by the value that's coming into this deal.

Right, exactly. I love this, man. I got to like write this stuff down. It's good. Cool. So you were sharing kind of more about the deal and anything else you had around, like the closing kind of like the the lessons learned there or, you know, big takeaways from that moment.

Yeah, I mean, it's, it's euphoric once you close.

That's great.

You know, when you finally get to the closing table, you know, there's always a couple of last minute things and you got to keep the faith as you're going through because, you know, there'll be people who, you know, the, the wire transfer to the bank for the LPs investments, you know, it gets held up or, you know, there's a, there's a check where a bank puts a little bit of delay on it. You know, especially when things come down to the wire, you have to just be prepared for that. You know, when you're dealing with such big numbers and maybe this is somebody's, you know, this is their first deal, as it was with mine, where you're talking about numbers this big, that can be stressful. But again, you know, that builds the experience that you have for the future where you, you can kind of take it in calmly and roll with the punches and not, you know, panic over that when you have little setbacks.

Right. Love it, dude. So after closing, you close on the deal acquisition fee, then there's, then the property is yours, the bills are yours, the income is yours, everything's yours. Right. And it's, and it's pretty immediate. How's that been going? How did you handle that? What's the future looking like? How are you feeling?

Yeah. So immediately upon taking it over, you have to look at what's my current situation, where rents at, and hopefully you've already done that work prior to the acquisition. And you lay it out and you say, well, this is where I am and this is where I want to go. And that's kind of supported by what you've been pitching to limited partners. Right. So I do a monthly email to limited partners and I just let them know, hey, here's where we are right now and here's where we expect things to be in a few months. So. And here's ultimately where we're taking things. So immediately you got to get to work. There's operational concerns. You know, I have weekly meetings, you know, extensive weekly meetings with my property manager to talk about things going on in a 51 unit portfolio. It'll also come down to individual units, so decisions that have to be made. You know, do you cut deals with people in order to keep on tenants while, you know, you're raising other tenants rent? Do you choose to renovate all the units at once? You know, and what kind of operational challenges come from that. So every week I sit down with the property manager and I work on, you know, what are the problem sets that are going to build into meeting my goals for that month. And it's been going great. I mean, at this point, 90 plus percent of the portfolio has achieved pro forma rents. And that's incredible. So we're, we're about nine months, but maybe 10 months from, from when we closed of being able to just continue to chisel away with month by month. And yeah, I mean, you know, there's, there's some parts where you have to make, you know, decisions that incur some risk on behalf of the portfolio too. You know, expending renovation funds, you know, on a particular unit or deciding, hey, I'm going to, you know, currently be renovating six of these units, and I'm gonna have to carry that risk for the next, you know, month or so until those units are renovated. That on the other side, you know, those units are going to get filled pretty quickly. So, yeah, overall, I mean, it's. It's been amazing to see just how much improvement can be made in a short period of time. We have really transformed these three apartment buildings from being poorly managed, you know, really low quality in terms of the rent base. And, you know, the. And essentially had to replace about 80% of the tenants who were there just through. Just through triage. And that's been an amazing thing for the people who, who are there and the people who have come into it because they've seen the quality level, their quality of life increase greatly.

That's good. Yeah, I love it, man. Well, great job. I know anyone watching this is probably giving you a big round of applause, so great job. And then I want to really touch on, for those who don't know, Stephen is actually part of our boardroom, which is like a mastermind for people who are established. Right. So once he got this deal, you know, we had a call and the conclusion of that. What I love about Stephen, the conclusion of that call was, I'm not stopping now. And he is scaling, he is go. He's got big goals and he is going. I'm telling you guys, if you know Stephen, you know, he is determined he's going to reach his goal. So I want to dive in a little bit about goals and also, and, and understanding you're. You're part of boardroom, which means, you know, you want to be over 100 million AUM, and you're currently, you know, to qualify for boardroom, you have to be at least 5 to 10 million in a assets under management. But talk to us a little bit about what's the goals and how's that going. I know that you said marketing and finding other deals, but go ahead.

So my, my short to midterm goal is to get into another syndication before the end of this year. And so I'm being very selective about that process and what things I choose to, to go after. I do want to expand outside of New Hampshire as well because there's just so much opportunity now in other areas of the country too. So, you know, I'm looking to do that by the end of the year. But along that way we've been picking up, you know, quad plexes and duplexes. And, you know, the operational success lends to more operational success. You know, victory leads to more victory. I'm a big believer in that. So you can capitalize on the successes that you're making with your syndication. Once you have one and it's successful, other investors look to that and they're like, man, how can I get in on your next indication? And if you don't have one ready to go, you can just get into smaller deals with these investors, which, which I've been doing aggressively, Love that close about a million dollars worth of additional real estate just in the months after the syndication close, just on, on smaller units here and there. So scaling from 61 units at the time that I closed the portfolio to now 77 units now, probably in the next couple of weeks, that will go up by another, by another four units as well. So, you know, quickly scaling on my way, by the end of this year, probably looking at 100 units total. If I don't get into another syndication just based off of acquiring units on my way to my next indication. Because you're able to take that operational success and show investors, hey, I'm experienced. I'm able to handle the ups and downs and I have the operational expertise and competence to be able to make your money work for you. So that's really the key is make your success, garner more success, continue to grow the portfolio. And yeah, maybe you don't see anything that you're going to jump on immediately, but in the way, on the way to that, can you continue to achieve more growth? And I've been able to do that.

Oh, that's so good. Yeah. And so that's, that's huge because typically, if you follow us for any amount of time, you understand we typically recommend getting into bigger units even from the beginning. But What Stephen did was created a machine and he had VA's working for him. He had things happening and he was able to systemize it. So then in that situation, we buy smaller deals all the time. Want. Because it's, it's, it's not a, a time consuming effort. It's not, we're not new like we, it's in our backyard. You know, there's so many different aspects and it's just easy, right. It's just that you can just keep the machine going. And so in that situation, while you're looking for that next deal, but you got another deal you're looking at. Right? And, and how are you feeling about that?

Yeah, it's, it's for the first time we're looking outside of the state of New Hampshire. You know, other than maybe some very minor townhomes that I did, you know, back five years ago in North Carolina though, you know, with the exception of that, I've been looking exclusively in New Hampshire, still looking in New Hampshire to some degree, but now have been looking outside of that and looking at some deals in Texas, perhaps Texas and down the Midwest. So that's exciting. It offers also an opportunity to talk to investors about the fact that we're not just pigeonholed into one area. We're diversifying. We're looking at areas where we see a lot of growth. And it's been exciting to start that process. We have just almost on a weekly basis, I'm sending things over for analysis to kind of stress test these deals, make sure that we have enough profit that's going to be coming out of them just at the start to be able to pay investors preferred returns.