Friday, September 15th, 2023
“Funds released ✔️! “
After a long, hard 387 days, my 7-unit apartment building has finally been refinanced.
I’m sitting in my backyard enjoying the sunshine as I recount this arduous journey: that is the acquisition, renovation and refinance of my small apartment building in Calumet City, Illinois. There is a sense of peace that my backyard brings and it's at this very moment that I need that kind of centering. It's been a really tough road and the anxiety I let in during this journey is still lurking despite the good news.
I could write a novel about this experience, and it’d probably read something to the liking of Brian H. Murray’s solar building in his book Crushing It in Apartments & Commercial Real Estate. I find some comfort in his story. I'm not the only one who thought their life might be falling apart before them as a result of a real estate deal gone bad 🤪.
If you’re reading this post, you might be interested in pursuing small multifamily real estate. If that’s you, read Brian’s book in addition to Brandon Turner’s The Multifamily Millionaire: Volume 1, FIRST.
I beg you. Please educate yourself before diving in BLIND like I did.
Or don't…🤪!
Hell, I didn’t…and I made it out alive 🤣, and now I’m here to tell you all about it 😁.
One of my text campaigns to tax delinquent property owners put me in touch with a wonderful woman named Karen. She owned a 7-unit, small apartment in Calumet City. And yes, this property was significantly behind on property taxes, in the amount exceeding $85,000. About a week prior to my getting in touch with Karen, these taxes had been purchased by a tax buyer at a tax lien sale. Why does that matter? The redemption clock was ticking, and Karen needed a solution before she faced foreclosure.
To keep it simple here, I ended up purchasing this property from Karen for $25,000 cash. I also assumed the tax lien. I knew the basic rules of tax lien sales and redemption periods so I knew I had 2 years to renovate and refinance this building before I, the new owner of the building, would face foreclosure. As a naturally risk-adverse individual, I had thrown all caution to the wind in my new real estate endeavor! What the f*ck was I thinking ⁉️. Building generational wealth was the plan 🤣.
So, let’s fast forward a bit. I acquired the building on Tuesday, August 23rd, 2022.
I was excited to get to work! First on my list was to renovate the exterior and vacant unit. After discussions with my property manager, I also decided to increase rents to fair market value ASAP. Since all six tenants were month-to-month, I knew I was going to experience some turnover upon notice of rent increases. My theory was that as tenants decided to move on, I would renovate each unit and market the updated apartment at fair market value. With six of seven units currently occupied, bringing in $3,090/month at the current rents, I was confident in my plan. The rental income alone would cover my lender fees and utility expenses. With winter approaching, I was anxious to get to work!
With September 1st just a few days away, and as the new owner of this small apartment, I was excited with anticipation of receiving rental income from my six tenants 🤑 !
The reality?
I was left out to dry. Only two paid 😟.
TWO.
The jest of it is, the other four tenants decided to stop paying indefinitely. Not move out…just stop paying 😩.
As a newbie landlord, it was an interesting predicament to be in 🤨.
After learning too late what an unfavorable state Illinois is in terms of landlord-tenant laws (unfavorable to landlords), I was stuck. I had to patiently wait as my property manager navigated the procedures correctly.
Alas, the rental income was far below my expectations with only two tenants of a now fully occupied building paying under market value rent.
On top of that, I was in for a rude awakening as it related to the utility bills. In 90 days, my gas bill swung from $383.54 in September to $1,246.73 in December. Yep…you read that correctly.
Talk about unexpected holding costs compounding on less than expected rental income!
Did I consider selling at this point?
You betcha.
But, I just kept going. One foot in front of the other, focused on what I could control.
They eventually trickled out…one in December ‘22, one in January ‘23, one in February ’23, one in April ‘23 and one in May ‘23 (I had rented out the vacant unit, who also decided not to pay lol).
As vacancies presented themselves, unit by unit, I got to work.
With two busted radiators on Christmas Eve, portions of the ceiling in various units collapsing due to prior water damage and squatting tenants over the course of 8 months, the renovation of this building wasn’t far from circus act.
However, by July ’23, I had renovated 5 of the 7 units and brought occupancy up to 100%. I was finally in a position to entertain the refinance of this building 🙌 or so I thought…
To learn more about the refinance of this building, stay tuned. You’ll want to read it if you plan to invest in multifamily real estate as it’s quite different in some respects from the single-family approach.
However, before I recount that stressful endeavor, I wanted to give you the lay of the land and a brief introduction to this project. It was a hard one from the start: squatting tenants, over-budget repair costs, unexpected holding costs and a tax lien that accumulated interest by 1.5% each month (that’s 18% annually 🤮).
Honestly, I bit off more than I could chew, let alone swallow. My learning curve was dramatic, but I stayed the course.
I’ve said it before, but when you have a super clear vision of your WHY, your personal mission and vision, the hard sh*t is easier to work through. You chalk it up to learning lessons and commit to not repeating them ever again 😝.
Believe it or not, I’ve determined one of my focuses moving forward is small multi-family real estate. Despite all the anxiety and fear that I went through acquiring, renovating and ultimately refinancing this building, I was able to work through all the hardship and walk away with a wealth of knowledge about how to do it better next time.
So, my friends, for those of you going through something really hard right now, I encourage you to examine your WHY and gain some clarity. What’s the mission behind the project or challenge. What’s your greater vision AND how does this very project or challenge play a role in building that greater vision?
I guarantee that it’s this very challenge or feeling of uncertainty that's positioning you (us!) for our next opportunity to level up. My mentor told me earlier this week that the more uncertainty you can take, the more opportunities you will have. Your frequency of believing is equal to your frequency of attraction, but you’ve got to feel safe and have clarity in order for the next break through to materialize.
As Marshawn Evans Daniels writes in her devotional 100 Days of Believing Bigger, “Instead of fear and frustration, give me the mindset and heart I need to navigate transition with forward-focused faith.”
I’ll leave it at that for now, friends! We can do hard things!
Stay tuned for the tale of the refinance…it's full of great drama (aka challenges) that everyone can learn from 😁.
Unit next time, Cheers !
