I’m pleased to announce that we’ve now closed on our second property, a 96 unit complex with 12 buildings in Emporia, Kansas. Formerly married student housing for Emporia State University, we will be rehabbing and bringing this online to serve the whole Emporia community, both university students and locals. At only a few minutes walk from the university, of course we expect to have a sizable student population.
Since this was an auction of state property and not a traditional sale brokered on the commercial market, there were fewer eyes on it and as a result we were able to get it for an extremely competitive price per unit. Given the strict time frame, we were unable to close the construction loan at the same time as closing, so there will be a small delay between acquisition and the beginning of the renovation. Though the majority of the units themselves are in quite good condition, there will be a significant amount of infrastructure work necessary to get everything up to modern code, since it will no longer be grandfathered in with the shutdown and change of ownership. I spoke of this in the ESU inspection post a few months back. Even so, we expect to be all in for roughly half of what the projected stabilized value will be, so it’s overall a pretty good deal.
We had a good project this weekend. We spent a day doing an inspection tour of our next project, ESU apartments. (name subject to change) This is a 96 unit, 12 building complex that was formerly married student housing for Emporia State University. It was shut down due to changing demographics – married student housing also is simply not looked at the way it was in the past. I happened to see this property when we were doing a property trip to our Courtyard property. It is just up the street, and externally appeared to be in very good condition. My immediate thought was “hey, let’s buy this one, too!” I can’t take full credit of course, as my partner had already seen it and had the exact same thought. Great minds think alike, you know.
We had planned for a full day, walking each individual unit plus a couple of basements and support buildings that are part of the property. Luckily, we were able to move faster than anticipated and not spend as much time in the July Kansas heat. It’s certainly not the South where I grew up or the middle eastern deserts where I spent too much time, but it still makes for a long day. We were pleasantly surprised to find that most units were in excellent condition, needing only minimal cleaning to be rent-ready. This sped things up tremendously. The flipside is that a small number of units had pretty bad problems from the humidity, lack of airflow, and a few broken pipes to boot. Overall the infrastructure is going to need some work, primarily due to lack of maintenance and that fact that the utilities shutdown means that the property will no longer be grandfathered in and must be brought up to current code. If we can get the property for a good price, the large amount of rehab shouldn’t be a factor except for time, and this will be a good earner of a property to add to our portfolio.
It was very educational to see what sort of maintenance concerns can exist in a property and how to spot them. We learned an awful lot about the complex, both from the actual inspection and in talking with the ESU maintenance staff who were on hand to unlock and later re-secure all the doors, most of whom had actually worked on the apartments before they were shutdown, as well as the minor maintenance that was performed afterwards. It’s vitally important to walk and get to know your property. Take every opportunity to do so!
Just got back from checking out the work at our 80 unit property that we bought with 3 other partners about a month ago. I started looking into REI around the beginning of 2013, decided to jump into apartments after a few months considering niches, got myself initially educated and went looking for deals. Found a good partner and mentor who is great about helping out and explaining while listening to input – who knows or thinks of everything, right? We had a couple of deals fall apart in the due diligence phase due to issues with deferred maintenance. Price cures all, but only if your seller cares what a value-based price is. Those deals were still educational in and of themselves. I learned to be even more skeptical than my natural sense, since it seems like much of what you hear initially about a property is either inaccurate or incomplete. (Or worse!)
So, after a nearly 8 month long process, we closed on an 80 unit property in Kansas that was poorly maintained and managed even worse. The owner was making money, which seemed to be ok with them, even if they were leaving an awful lot of money on the table by not going to much effort to do a good job. Ultimately, of course, this is fine with me because by spending some time and effort that value becomes ours instead. It’s a win-win! I feel pretty comfortable with the project, having seen what’s been accomplished already and knowing what’s still to come in the near future. It’s a nice thing that the town is big enough for a full pool of tenants but small enough for talk about a changing reputation for the property to get around quickly.
I’m just glad it’s all very definitely real now, and not some theoretical thing in a planning stage that I very certainly intend to do. Now it’s time to go look for a few more!
As mentioned previously, we’d been looking at a $500kish 18 unit in OKC, but it ultimately ended up not working out due to maintenance issues costing too much versus the price, which the owner wouldn’t back down from. Our next target was ironically another 18 unit in OKC closer to the $600k price point. We did an inspection and it had the usual issues, all quite fixable for a price. Some of the units were freshly rehabbed, some in process, and some already beat down by the occupants. As always, there’s a mix of all types, but some people just don’t want to live in clean conditions. Of course, this brings the bugs, who also go visit the neighbors, too. You don’t even need to keep things spotless to prevent this, just a basic general clean. To be sure, this is not all the tenants’ issue either, and management must do their part with preventative maintenance for all the aspects of apartment living.
There were a variety of total maintenance issues, even for a building that had been bought fairly recently by the current owners. We cataloged them for our inspection, and they really started to add up. If you can, be part of the inspection. It’s very educational, both on necessary maintenance, and as a sense of getting to know the property itself. As part of the back and forth negotiation, it ultimately came down to the seller counter-offer of “we aren’t going to fix anything, but will give a credit for $x at closing”, where $x was only a fraction of the actual costs that would be incurred. The numbers are now no longer within our criteria and with the seller not being flexible…that’s all she wrote, folks.
Amusingly enough, after the previous OKC 18 unit ended up not working out due to maintenance concerns, we’ve found another OKC 18 unit that’s on the market, recently having a good deal of maintenance work and renovation done on it. From appearances, it’s definitely in better shape and should be a good deal to cut some teeth on.
Additionally, I’ll be doing some more direct work on this one as co-syndicator. To be sure, it’s a smallish role, but it will give me that much more direct experience in inspecting a property, getting investors involved, learning about the acquisition process and management, etc. I’m really looking forward to it.
It can be pretty disappointing when things don’t work out. This 18 unit in OKC had been looking good with some decent numbers, and some room for improvement. At about a $500k deal, it would have been easy to get into and a good starter deal for the experience, with a minor value-add component.
Well, as it turns out, there was a pretty critical maintenance issue that cropped up. The roof had asphalt shingle overlaid on wood shake, so not exactly a good structure for roofing. Not really up to building codes, best practices, and such. The owner offered to repair where it was leaking, but not actually fix the issue. When you’re buying properties that are in a functional state of repair, this is obviously a problem.
We reached an impasse, and that was that. On to the next deal…