Deal Analysis: Turning $650k into $1.2MM with Multi-Family Real Estate

Deal Analysis: Turning $650k into $1.2MM with Multi-Family Real Estate

Investing in value-add apartment buildings presents one of the best opportunities, to create wealth and consistent cash flow. In this case study I’ll outline how my partner and I at Blue Summit Capital, created over 400k in value in 14 months with a 24 unit apartment complex in Alabama.

How We Found It

We found this deal on Most investors will tell you that Loopnet is where deals go to die but there are still deals to be found there, on occasion. I’ve found a few through the site.

Background and Due Diligence

The property is 24 units across 6 buildings, 2 story, garden style with a courtyard in the middle. The property was built in 1955. The current owners lived out of state and self managed. We got the impression from the owners that they were having trouble with occupancy and they were ready to be done with it and move on. It was 50% occupied and not well taken care of. Other buildings in the area were 85%-95% occupied with higher rents. Our suspicion was that the current owners didn’t know how to properly manage or lease up the asset from out of state. Our plan was to put the right property manager in place, upgrade the remaining units at a higher rent amount, and slowly turn the occupied units when leases expire. After more market analysis of similar buildings in the area, we determined that rents could be increased an average of $100/ unit by modernizing the units and making some general exterior improvements. After some negotiating, we settled on $650,000 ($27,083/ unit).

How we financed it

We used a combination of cash and a short term bridge loan from a lender we had a good relationship with on smaller deals in the past. The plan was to renovate the vacant units, lease up, then refinance with long term commercial debt to pay off the bridge loan.

14 months later

We acquired this property during the Covid pandemic which had a factor in allowing us to execute our value add strategy. We didn’t lease up the units as quickly as anticipated, which was a combination of not having the right management in place and a general aversion to multi-family during the beginning phase of Covid. After finding a new property manager with a clear vision on how to stabilize the property in conjunction with hiring an outside digital marketer, the property is 100% occupied with all 12, initially vacant, units remodeled and leased at $100-$125 more than the original 12. CapEx improvements included a new roof, exterior paint, landscaping, new electrical where needed and the upgraded units. During the process of acquiring long term commercial debt, the lender ordered an appraisal of the complex which came back at $1.2MM ($50,000/ unit)!

The Numbers

Purchase Price: $650,000

Total Acquisition CapEx: ~$785,000
Total Equity Increase: ~$415,000

By raising the rental amount per unit by over $100/ month and reducing operating expenses on the P&L, we inherently increased the value of the asset by >$400k. There are a number of methods a Real Estate appraiser uses on a commercial property. One of the most prevalent is the income based approach. Essentially, by increasing rents by $100/ unit we increased the gross income by $28,800 annually. Divide this by the current cap rate of the market (6.38%) and the asset has increased in value by > $400k by this approach alone.

See how I used a similar approach to scale a rental portfolio of smaller properties

Jonathan Spaeth
Jonathan Spaeth

Jonathan is a real estate investor & entrepreneur based in Atlanta, GA. After 20+ years in the tech industry working in corporate America, he went on to found a variety of startups in the Real Estate and tech space. Jonathan owns a portfolio of single family & multi family rental properties across the Southeast.