Jeff Berlin?and his team added $5 million in value to this property and are planning to hold it long-term while realizing 20% CoC and 30% IRR for investors. Here's how they’re doing it ??
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This 103-unit Class B multifamily property was purchased in March 2019 and is located in Columbus, OH.
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The property was purchased for $6,915,000. The team raised $1,435,000 in capital and secured a $5,532,000 loan, which was interest-only for the first three years before transitioning to a 10-year term at a 5% interest rate.
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Interior upgrades were attempted (new flooring, appliances, etc.), but the team found that the rents they could get for these upgrades didn’t justify the cost, and they were able to increase rents organically without this expense. They stopped the upgrades and still had good annual rent increases without the additional expense.
The team also replaced the roofs on the buildings and upgraded the electrical system from Federal Pacific breakers, as required by their lender. These breakers are notorious for safety concerns and are a fire hazard. Cost of replacement runs about $3,000 per panel.
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The current valuation is $12 million. Annual debt service is $276,000, NOI is $550,000, cash flow is $273,000, cash-on-cash return is 20%, equity multiple to date is 5X, and IRR is around 25-30%. The plan is to hold the property long-term for cash flow.
Berlin noted, “I wish I could refinance and pull money out to use as a down payment on another property, but unfortunately, I have a 10-year loan with a prohibitive yield maintenance prepayment penalty. Yield maintenance considers both the remaining loan term and current interest rates, which makes it costly to exit even though rates have risen since I purchased the property. Looking back, my biggest mistake was choosing this type of loan. A step-down pre-payment structure would have been much better—after 6 years, a known 3% pre-payment penalty would have allowed me to refinance, access equity, and reinvest in more real estate. Instead, I’m stuck waiting for the loan term to burn off further. Yield maintenance has made it impossible to refinance and capitalize on new opportunities, which has been a hard but valuable lesson.”
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