It's a Revenue Game

You can only cut out so many expenses. But you can increase revenue infinitely.

We buy all of our deals cash flowing. And it is typical for us to payout distributions to our investors 45 days after closing a deal. Many times the properties we buy were being ran inefficiently, the property is neglected (deferred maintenance), and/or the rents are well under market. And many times the seller has no ancillary income.

We close deals with extra cash to take care of issues we know about and the issue or two that may come up that we did not know about - yup, believe it or not sometimes sellers don't disclose everything. We like to be prepared for those situations.

I focus on the revenue first for the first few years. Typically we run our projections before purchase with higher expenses than the seller and brokers estimate. And we do in fact operate the properties with a higher overall expense (in dollars) than the seller. Many times we pay our employees more, have better contractors, etc, while still making sure we get competitive bids, plus, we take care of the deferred maintenance that the previous seller neglected. All of which is the up front investment to squeeze every dollar of revenue out of the property now and into the future.

As time goes on, the expenses and expense ratio falls in line with where it should be. But this does typically take 2 to 4 years to do depending on how big of a hole the seller put the property in.

Here are a few examples of our increases of revenue with different time periods across different properties:

Property 1: 88 Units purchased in 2016

• T12 by seller during due diligence: $687,892.45 ($57,324.37 monthly average)
• 2019: $840,956.92 (70,079.74 monthly average)
• 1st Draft 2020 budget: $972,029.51 ($81,002.46 monthly average)

Property 2: 47 Units purchased in 2018

• First month revenue after purchase: $29,304.88
• December 2019: $38,613.71
• 1st Draft 2020 Budget: $522,108.85 ($43,509.04 monthly average)

Property 3: 96 Units Purchased in 2019

• T12 by seller during due diligence: $797,371.44 ($66,447.62 monthly average)
• November 2019: $68,897.69
• 1st Draft 2020 Budget: $857,418.57 ($71,451.55 monthly average)

Here's the story on a deal we went full cycle on: