This property was acquired in October 2022. It was the third property we acquired under the FTD umbrella. The property was in a small town outside of Kokomo, Indiana, which was a hotbed for job growth due to a new battery plant being built.
We purchased it on-market from a broker and took advantage of the seller lowering their expectations of the sale price. It consisted of 25 apartments, 3 garages, and 1 single-family house. The seller had his own management company, contract services, and maintenance team, so the expenses were light in their financials.
High-Level Business Plan Summary:
- Soft value-add renovations, starting with flooring, paint, light fixtures, and vanities and cabinets if needed.
- Evict the handful of delinquent tenants and lease to new tenants at market rate.
- Sell off the single-family house to recoup some of our basis and provide a strong return.
- Our goal was to refinance the property after stabilizing it between years 2 and 3, pulling out most of our original capital while maintaining strong cash flow for years to come.
Obstacles Encountered | Lessons Learned:
- Appraisal Means Everything: The longer we do this, the more we realize this is the crux of putting together good debt. As part of our lending terms, we were supposed to get a construction line of credit. The appraisal came in right at what we purchased it for, and we couldn’t get the line of credit, leaving our reserves light.
- Expect the Worse, Hope for the Best: We knew we were going to turn 5-6 units in the first few months; however, over the course of the first 18 months, we turned 22 out of the 25. This, along with having to do a roof and other capital expenditure items, left our reserves depleted and pushing back investor distributions. We were able to secure a private loan from one of FTD’s Managing Partners, along with going back to the bank and getting a new appraisal, which allowed us to access a $120K line of credit.
- Focus or Lack Thereof from 3rd Party Management: The first 11 months of our ownership of the property, we used third-party management. The lack of focus was evident in the rent roll, leasing, and upkeep of the property, which set us back significantly. Once we brought this under our in-house management company (Thrive Property Group), we were able to right the ship. However, some damage had already been done.
Why Did we Sell?
The obstacles mainly, along with wanting to take advantage of the job growth in the market and provide a solid exit amongst the bumps in the road. Repurposing those funds into our next deal (Clear Creek Apartments)
Overall: Would We Do This Deal Again?
Yes, however, without third-party management, more reserves, and a secondary appraisal with a larger line of credit, this was still a deal with above- average returns.
Financial Results:
Phase 1 – 25 Unit Apartment Sale
- Purchase Price (October 2022): $1,450,000 ($58,000 Per Unit)
- Sale Price (August 2024):
- $1,850,000 ($74,000 Per Unit)
- Hold Time: 22 Months
- Invested Capital: $307,500
- Return of Capital & Cash: $397,996
- Equity Multiple: 1.24X
- XIRR: 12.57%
- Average Annualized Return: 12.50%
Expected Phase 2 – Single Family House Sale
- After selling the apartments, we now own the single-family house debt-free with a lease-to- own contract.
- Collecting rent for up to 18 more months, with the tenant set to purchase.
- Sale Price: $135,000
- Proceeds to be distributed upon sale, and a full case study will be re-released.
