Summary: We bought a large multifamily property! A 160-unit one to be exact. This is part 3 of a three-part series on our 160-unit purchase that we completed at the end of 2021. In this article, we will be sharing the key lessons we learned during this incredible process!
[Disclaimer: We are not accountants, lawyers, or financial advisors, so please consult your own team of professionals about the topics covered in this article.]
This is a three-part series sharing our experience of acquiring a 160-unit apartment complex in North Las Vegas.
In part one, I went into detail on the deal. How it came to us, the good and bad about the property and the negotiations.
In part two, we discussed the major challenges of the deal.
In this last part, we’re going to cover what we went through to close on the deal, what we’ll do differently moving forward, and the key lessons we learned from investing.
If you’ve closed on an investment property you know that “problems during the closing” is the norm. This deal was no exception. We had our share of challenges trying to close before the end of the year.
The Importance of Closing for Tax Purposes
You might be wondering, why did we need to close before the end of the year? The main reason was taxes.
If you’re familiar with the tax benefits of investing in real estate, then you already know the reason.
For those who don’t know, you can use something called bonus depreciation to create large paper losses. If you have a status called real estate professional, you can use these losses to offset any form of active income, the main ones being W2 or 1099 income.
For example, we have a considerable amount of active business income that we needed to shelter so it was essential for us to close before the end of the year, so we could use the losses to offset this income.
Let’s dive into some of the problems we encountered in order to close on this deal in time.
Not Enough Time to Raise Money
If you’re fundraising, you want to give yourself as much time as possible. This is a key lesson that we learned from investing in this property. In our case, with all of the challenges we discussed in Part 2, we ended up only having about 2 weeks to raise the funds.
This was further complicated by the year-end holidays when investing is often the furthest thing from people’s minds.
Fortunately, we had already pulled in an experienced general partner who had an established investor database.
Add to that some creativity and some good fortune. We were able to get the funds we needed to close.
If we were to do it over again, we could have done a better job planning ahead. Each of us could have started lining up investors well ahead of time.
It helps to have an investor database and work on building trust with them. That way, they’re primed to invest whenever you have a deal.
It’s always humbling when you raise money. Because you realize just how much trust you need to build with your group of investors in order to raise money.
You might think that you’ve built that trust by investing so much time and effort into your group of investors. However, you really don’t know until you ask them for money.
If they don’t give you money, they either don’t like the deal or you haven’t built that level of trust with them just yet.
Anticipating Problems During Closing
Closing a deal involves numerous moving parts. It’s like juggling 10 balls in the air while riding a unicycle. Add to this, numerous partners as well as investors. It really starts to feel like a circus. You’d think signing closing documents would be fairly straightforward.
In our case, with four TIC co-owners and signing on behalf of a fifth syndication LLC, there was a lot of paperwork involved. On top of that, it was the holidays. So some of us were out of town on vacation.
Leti and I were planning to be in Puerto Rico during closing. When we informed title/escrow about our plans, we found out that the bank and the State of Nevada didn’t recognize Puerto Rican notaries. So, we had two choices. Either fly back to the mainland to sign paperwork. Or, figure out a way to authorize one of our other TIC co-owners to sign on our behalf.
In the end, we did the latter. Nevertheless, it went down to the wire. In retrospect, we should have anticipated this problem much earlier. Which would have enabled us to have these discussions with our lender and the title/escrow company.
Key Lessons From This Experience
Overall, this was an incredible experience for me and my partners.
My former self would have been intimidated by the size of the property and the scope of improvements required. I wrote about my mindset years ago. When I might have sabotaged myself and never even put myself in the position to buy a property like this.
However, ever since Leti and I started working on our mindsets, our perspectives on a new experience like this have completely changed. Instead of running away from these opportunities, we now seek them. We look at something we’ve never done before as an opportunity to grow. Growth, rather than status or money, is what fulfills us.
Another key lesson from investing in this property is further validation of the power of relationships. This deal wouldn’t have been possible without the relationship building with the owner of the property. We wouldn’t have locked up those last two units if we didn’t focus on building relationships with the owners and finding ways to meet their needs.
This deal wouldn’t have come to me without the relationship I had built with the agent who brought me the deal. Together we pulled in two other people to be our partners who we had built relationships with. One of them was someone we have built a relationship with over the course of three years. She was in our very first Zero to Freedom class and she had attended a number of conferences and events with us. She showed up. And throughout it all, she focused on friendship first, not what she could get out of the relationship.
Takeaways
This experience has really spurred us to look at these types of deals completely differently. We learned many lessons from investing in this property, but one of the most valuable ones was the proof of the concept that “I don’t have enough money to invest in a large property” is truly a limiting belief.
Leti and I are no longer limited by this belief. We know that we can always find the money somehow. Either through partnerships or by raising the money. It is truly the culmination of our article “The Journey to Owning a 100+ Apartment Complex Begins With One Duplex.”
