Watch this before you buy an apartment building

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