In this second part of a two‑part series, Mendell Gosnell, CPM, walks through the five‑to‑six‑year hold period of a 13‑unit (later 14‑unit) multifamily property in Arizona. He explains his buy‑and‑hold philosophy, the challenges of managing the asset remotely, and the transition from an onsite manager to a local property manager. Early on, the partnership performed capital improvements, addressed deferred maintenance, and upgraded units while operating on a shoestring budget, financing most work from cash flow. Gosnell details the ebb and flow of vacancy, rent‑raising through unit turn‑overs, and the need to stay attuned to the local market, which required periodic trips to the property for tenant interaction and vendor coordination. As the note on the purchase approached maturity, the sellers offered a 10 % discount for early payoff, prompting the partners to buy out the note and later decide to sell. Preparations for sale included hiring contractors, making cosmetic upgrades, and conducting market analysis and 1031 exchange considerations. Throughout, the LLC funded travel and improvements, allowing the partners to receive regular cash‑flow distributions. The hold period concluded with the property being marketed, receiving strong interest, and securing an offer, setting the stage for part three on the sale process.
Chapters
All right, so this is part 2. Earlier in part 1, we went over the buy of the Arizona property, and now I want to get into part 2 and get into what it was actually like to hold and manage the property and oversee the property for a little over 5 years. I think it was close to 6 years, because buying the deal is one part, and operating it is where you really find out what you bought and if your assumptions were correct and how good your partnership is. In this case, how willing you are to press through challenges and not allow the stress to overwhelm you when things don't go right and they go wrong, and they will go wrong, and you'll have some challenging months and some expenses that you didn't expect. Here, here we go. Let's get into the hold again. Just review, in part 1 I talked about how we bought a 13 multifamily property, and we're able to improve it and turn it into a 14-unit property. Now I want to talk about the, the hold period. Generally, for me, the hold period is forever. I want to buy and hold and never sell, though I've sold a couple pieces of property over the last 20-plus years. It's very unusual for me to, to sell, and I'm kind of a big advocate to buy, buy and hold. In this portion of the This video, just want to look at the different elements that went into managing the property and how we managed it for a period on our own from a distance with just the point of contact, the onsite manager, which was pretty challenging, which quickly led us to hiring a local property manager and working through them and how they did a phenomenal job. But it also taught us how to, how to be good owners, working with the property managers, stay on his radar and be patient when things were slow in getting responses or trying to figure out what's going on. Just learning to trust. And, you know, I think first you got to have a good person that you can trust, which we did. But there was just still some situations where we thought we should hear back right away and took a little longer than we thought. And then once we started seeing the consistency over time and That things were getting done. Then we realized, okay, we need to not be so hard on this individual. It's just a tough property. It's not his fault. It's it's what we're dealing with in our property management when our owners call and say, hey, what's going on? It's the same thing. So you know, we were able to see it from the other side. So that was interesting. The other reason that I think is this part two of the hold period is pretty cool is a lot of times you see. Individuals breaking down deals, and they focus on either the the buy or the acquisition, or maybe the disposition or the sell and what they did. But kind of looking at the mechanics of the hold period don't always get addressed much. And so I think taking some time to talk through what happened over the course of five years, there was a lot of months that nothing happened. It was just like clockwork, you know, no issues. And then all of a sudden, plumbing line would break, and we. You'd get 3 move-outs and things like that. But when we first took over, we implemented a lot of capital improvements, cleaning up the property, doing turns that were needed, and doing some deferred maintenance, and doing a couple upgrades that we thought would make the property look better. And taking the feedback of the onsite manager and repairing some plumbing lines, things that we found during the inspection that we assumed responsibility of as part of the deal. So we had to handle those things. Once, you know, once we got through all those, we kind of settled into a good rhythm, you know, and had some move-outs and we just did the turns and we were able to outsource some of the maintenance and the turns to the onsite husband. So that was a pretty good scenario. And then there were some times where he wasn't able to do some things. And then we were able to work with either our onsite or our property manager. Or in a few instances, we called around a number of vendors and got some bids directly from them and then put them in contact with the property manager. That was a little challenging. Our property manager didn't love that, but he was really gracious to work with us, and it did help us save a little bit of money, but it cost us a lot our time, so it wasn't the easy button. Just outsourcing it to the property manager and their staff and their processes. But the partnership was a budget constraint. We didn't have a lot of money for this deal as a partnership, and so we had to make every dollar count and do what we could to really do things on a shoestring budget, as a lot of investors starting out certainly have to do, um, do that. So that was the first couple years. And then, you know, certainly had a lot of periods where over that time the market started off really hot. And then we went through a period where we had vacancy for a period. And then it was just frustrating trying to get things rented and working with our property manager and trying to stay top of mind with him and get constant updates in terms of what's going on and if there was anything that we could do or needed to do to make the property better or more attractive or lower the price or offer specials. And so working through that, And trying to stay up on the local market, seeing what we could do from a distance. Sometimes that was a little challenging. Over the course of 5 years, on average, we were going down there probably at least 2 times a year. I think there was a couple times that we went down 3 times a year. I think I made it all of the trips except for probably one, one time that the other 2 other partners went down there without me. Developing the Relationships with the tenants when we were down there, being friendly, asking them if they had any feedback, how they liked their property manager, if there was any issues, and just being as plugged in as possible. I think that that was very helpful as well. Trying to be proactive when we did go down there, always to walk through the property with the onsite with with the property manager, use it as an opportunity to connect with some of our vendors and meet them, coordinate our trips down there. With meeting vendors who were going to do some projects. That was very beneficial. But over time, it, uh, it was, you know, became clear that it was just a lot, a lot of work. We bounced around a couple different ideas in the partnership if we wanted to put a lot more resources into the park and develop and improve it to try to take it to the next level, or if it were just, hey, we're just going to settle into this routine and this is pretty much what we can expect and we'll just ride the So we thought about that for a while during the hold period, and I think ultimately we decided, you know, I think the the time has come. We've kind of maximized our vision with this property, and let's see what it might look like to sell. So we began that process of getting some comparative market analysis from real estate agents down there. Began to vet commercial real estate agents and get their feedback on what they thought the market was like. Is it a good time to sell? A good time to 1031 and to a different property, you know, and we got mixed reviews. We felt like the market was not as strong as it was when we bought, but it had gone up and appreciated quite a bit. So that was good. Whether or not we were going to be able to sell at the valuation that we thought we could, and then 1031 into another property, the deal valuations were not looking that great. So if we did sell and we got a good deal, it wasn't likely that there was a lot of opportunities to rotate into on a 1031. So we decided to shelf it for another year. And at this point, we were about getting close to 5 years in, and our note was coming due at the end of the year. I forget the exact date, but it was, you know, about a year out or so. So I guess it was over a little over 4 years at this period when we reached out to the previous owner, the seller who had the note, and we asked if he would be willing to extend the financing on it. We were looking around, shopping around banks, and this time the interest rate environment had exploded, and so rates were higher than normal. And so we thought, well, let's just ask if he is. That would be the easy button. We don't have to Worry about anything. We'll ride it a little bit longer and decide later, push it, kick the can down the road. But the seller was not interested extending the terms. He didn't have to. And in fact, though, he actually said that he would, if we paid him off early, would give us a sizable discount. So if we were able to secure funding and cash him out, we would actually be able to capitalize on a 10% discount on the remaining balance of the note, which was pretty attractive. So we talked as a partnership and we decided to move forward with that option, purchasing the note and buying him out essentially, which gave us a lot of opportunity to just not be under any real constraints. But the partnership ultimately didn't want to be in that position for too long. So we decided to ultimately move towards selling. And so we realized that at that point, We needed to prep it for sale. So as part of that hold period, getting ready for selling it, we hired some contractors, went down there, interviewed a couple different ones, picked the one that we liked the best, came up with a vision for kind of some improvements that we thought would really get things looking good. New paint, some new awnings, some fence repair. There were a number of things that we did just kind of in general during that hold period. We were really diligent to stay on top of the market, so we kept the property well maintained. We, when units came vacant, we remodeled those, which allowed us to raise the rents consistently. We added a unit to the property. For the most part, the memory on this one is different for different of the partners, but I think the consensus is mostly— We didn't have to put any money into the property once we purchased it. One of the partners seems to think that maybe we we did go out of pocket a little bit initially, but I think generally the consensus is over the whole period we pretty much were able to finance all of the improvements out of cash flow. So we let the cash flow build up. We were able to do some improvements, and then we were able to take consistent distributions, cash flow distributions a few times a year. And all of the trips down to Arizona by each of the partners was paid for by the LLC. So out of the property fund. So that was pretty cool. So we were able to do— go down there paid for by the LLC, the flights, all of our food and transportation. And again, the housing was taken care of. We just— we stayed at one of the partner's friend's house, which was phenomenal. Awesome opportunity. That was, I think, the highlights of the hold period, the friendship and getting to travel down there. That was an awesome part of the overall experience while we were holding the property. Just a lot of cleaning up and then any deferred maintenance that we had not dealt with along the years, we took care of getting it all ready. I had another agent come in, pick it apart, give us feedback. We implemented those changes. And then put it on the market. Surprisingly, we were able to get an offer, get a lot of attention, and get an offer pretty quick. That kind of leads us to the sell portion. So going to wrap up this portion of the video, the hold period, and then jump into part 3 and look at the elements surrounding the the sale of the Arizona property. All right, thanks for watching. We'll see you in part 3.
