Watch Us Analyze This Foreclosed 80-Unit Apartment Deal in Atlanta (LIVE)

We're going to break it down just like we would if this thing came across your desk right now.

Every single one of them is in foreclosure. Every single one of them. The old days, 50%, I think is gone.

It's a 6.5 market cap rate. You want to be buying it for like a 9.

That's half.

Great presentation. I love you. I don't love the deal.

Okay, let's talk about the 80-unit deal. So Arthur has— he mentioned earlier he has a deal that's under contract right now. And let's— we're going to break it down just like we would if this thing came across your desk right now. Everybody has different buy boxes. You know, Jeff Roma is doing some storage units. We have Steve and Amy doing some assisted living. You know, there's Larry's invested in new construction. You know, we've all been a part of deals that aren't necessarily the typical buy box that we're saying for a newer investor getting into newer construction is probably not the thing. right? It's something we're definitely going to advise against, right? Because there's higher level risk in there. You need to have a little bit more risk tolerance and, and ability bandwidth financially and in many different ways, right? So same thing with typically your vacant properties or underperforming properties that are, you know, below 50% occupied. However, you gotta take into context Arthur has the experience, he's got the ability to jump in there at a high level and he understands what this process would look like. So when we're looking at this deal, I just want to break it down because put yourself in that mindset. What does it look like to do a deal at this level? And we can just run through what it would look like if you were entertaining a deal like that. But you got to take into perspective your specific situation. Typically, if you're brand new, light to moderate value add opportunities is going to be the play, right? You're adding value, but you're not having a long lag time in there where anything can happen in the market and then you're just adding a lot more risk, right? You're having something that down the street, it's, there's a property that guarantees you can make the rents $150 more and you can do it within a 12 to 18 month timeframe, right? So that's a little bit more safer, but Um, let's look at— with that being said, let's look at the deal. All right, so we got 80 units. Where's he looking?

Atlanta, Georgia.

Atlanta, Georgia.

I'm not far from the airport, on the good side.

Very—

the better side.

All right, so let's walk through. This comes across the desk. Um, I need to know what's the bid. It's 80 units. All right, so let's go through it. So what do they want? Purchase price?

Um, we're down to $4 million. Uh, yes, there's some bees in the vicinity.

All right, so I want to know, first off, what's the reason it's at zero? What happened? What's the story on the deal?

Okay, there's a, there's a gentleman, um, I don't, I don't say his name, but he was an unscrupulous operator, um, He actually bought over 10 properties in 2022. It's closer to 15. And every single one of them is in foreclosure. Every single one of them.

Is he from New York?

He's not from New York.

Well, I don't know.

He might be.

So I do have more details about this operator. I could say that I used to watch him, look up to him. Several years ago on Instagram where he was closing with these properties and popping bottles of Cristal and having his BMW i8 in front of the properties and wearing Rolexes and then flying to Dubai.

So it's a really bad situation of mismanagement of investor money.

And second lien, because all of the second lien positions are not getting paid. On these properties. I have some insider information on this because I end up meeting the bank and the— you know, what did everything too.

So anyway, um, unscrupulous owner that fell into a bad situation and the, the bank foreclosed and they decided not to manage the property.

They just let the leases expire and slowly let people move out while they were looking to sell the property.

Initially, they wanted to sell it for $5.8.

So the bank owns it now?

Yes, bank owns it. Okay, so first of all, off of this $4 million, I'm getting a seller concession, $250,000. So that's gonna go directly to the closing costs, which will lessen how much I have to bring to the table. So really it comes in at like $3.75 million. CapEx, $2.9 million.

$2.9 million.

Yes. Now, structure is everything because of that $2.9 million, I have negotiated with the construction team. They're interested in being an LP in the deal. So 25% of that, which would have normally been profit, is being written back to us as profit to be in the deal as an LP. So this $2.9 if you just want to call it returns into $725,000 of this comes right back to me. So our real cost is $2.275,000, if that makes sense.

Yeah, yeah.

But I'm still going to borrow— I'm still going to borrow $2.5 million. Yeah, but I'm getting back, right? Yes.

Okay, so total all-in cost, what is that?

$3.75 million plus $2.275 million. Right, yes.

Okay, 75, 75, 65,000 is the per-hour price. 75K.

All right, yep.

So remember, that's all in after renovation. Okay, in the, in the Atlanta market. So is anybody familiar with Atlanta market at all? Georgia? What, what a stabilized property would go for? Per door after it's all renovated? 120, right?

So 75 per door.

Depends on the rent.

All right, well then this came from Jack, who's an expert. Yes, this, this is a very conservative number, that 2.9.

We need to go into your formula, rent revenue, and so we can get to the— so after cap rate, but What's your debt term on it? I mean, can we get that up there?

Sure.

All right.

Debt, what is it?

Bank's willing to do 2 years, 21 months.

Uh, 9.9%.

9.9%.

British debt is kind of low as well.

Yeah, it's been, uh—

What, what else, David?

65% LTC, LTC, 65%.

Here's another question for you. What's your expected construction period?

Yes, so we're going to get 2 teams to knock this out, experienced teams, and get this whole thing done within 6 months max.

6 months, and then you start, you start the lease up scheduled in 6 months?

Nope, I'm going to start leasing out as soon as each building is completed. So there's 8 buildings, um, roughly 10 units in each building. And the way that the parking lot is structured when you come in, we're going to be renovating the first 2 and then moving forward. So every 4 to 6 weeks, one building will be completed, and we'll be leasing those buildings up as we go along.

We got to imply an expense ratio. I know all of you have been educated to use 50%, but what's the vintage of the property?

1971.

1971. After the full renovation, my expectation would be best case scenario, 55 or 60, not 50% expense ratio.

Yeah, 55 if you're real good, right?

Yeah.

65 if you're not. So, so I mean, I don't know, you know, Jack, I said all the time that, well, for the 50, well, I just, good point to say like we do need to adjust that 50% overall because I mean insurance is double, expenses have gone up, all those older vintage properties really needs to be higher.

So except, except in this case, totally renovated, totally all new mechanicals, all new plumbing, all new electrical, etc.

All right, so make it 57.

Little rough crowd. No, no, I mean, yeah, Silly.

Okay, okay, that's it.

What's George say?

1.17 million.

At that point you're putting a lot into it, so I would go a little bit lower. So what would you—

55?

No, 53. 55.

So both work for me. I mean, I think Arthur is a good operator with the help of all of you here, so, um, I think 55.

But that's a, that's a danger though. A lot of people would say, I'm renovating the property, I can make it 45. I've seen a lot of people would—

if you're out doing business, you're all in, right?

That's all you're— yeah, yeah, yeah.

I agree 100% because even, even on my smaller units, for example, when I initially underwrote them, I used to underwrite it going back several, you know, some time. I would look at 25% or 30% expense ratios because they're smaller properties. That's not the case. A lot of, a lot of times smaller properties can end up having higher expense ratios than the opposite way. And the old days of 50%, I think, is gone. And you do have to look closer to that 60%.

Perfect.

Yeah, I just took it straight to NOI.

Okay.

$527,000.

$527,000. It's $527,000 annual NOI at 55% expense ratio, correct?

Okay.

Stabilized. That's a stabilized NOI. I think that's actually conservative because we are looking at the rents today versus the property won't be stabilized until the second year, right? So we're missing the one year of rent growth, which is fine. Okay, so $527,000 annual NOI, that's the stabilized NOI you should expect once the property gets stabilized.

That would be an insanely discounted price for a fully renovated roof to floor, all new mechanicals, all new plumbing, all new electric for $97.5 million would be a significantly—

yeah, but that's kind of red.

If you're just going by, you know, and somebody's got to get a home.

Yeah, I don't know. No, I mean, I hear you, Arthur.

Great presentation. I love you. I don't love the deal.

I mean, they got room to go.

We got room to go.

Like I said, thank you, Mr. Wonderful. Well, yeah, yeah, I'm kidding.

If you like it from us, I'm kidding. We're real conservative. We make a saving. Hang in there.

What's the number? Where's that? Is the question. The big thing with these deals is you got to be all in, all for— you got to have a bigger discount, Typically teach a 70% or 80% discount. You know, you want to be— if it's a 6.5 market cap rate, you want to be buying it for 8, right? But on a deal like this, there's a lot more work to do. You got to be buying it like a 9.

That's—

yeah, right.