Wrote the equity check and stayed out, year one NOI 79k against 61k

I am reading this twice and want to check I understand the valuation part. If NOI went from 61k to 79k, does the building's value go up just because the income went up, without any comparable sale changing? That is the piece that keeps not sticking for me in the five and up range.

Seven turns in twelve months on twelve units is a lot of movement. How many days was each unit down, and what did a turn actually cost you? My 8-unit averaged 31 days and 6,200 a unit, and I budgeted 4k. If yours came in near the 8k allowance I would like to know what was in scope.

@cairn's question is the one I would ask too. Seven turns means either a crew sitting on your building or a lot of waiting on subs. Who ran the work, the operator's in-house guys or trades bid one at a time? Sequencing seven units through one plumber is where those 31 day averages become 50.

The insurance number is the part I keep coming back to. Nearly double the schedule figure is not a rounding error. Was that the market repricing generally or something specific to those buildings, roof age or a claim history you inherited?

What happens to the year if only four of those seven turns hit 1,050 and three come back at 920 because the finish quality slipped? By my rough math you lose about 4.7k of annual rent, which is maybe 70k of value at that cap. Did you model a downside on the achieved rent or just the timing?

Does a deal like this work at all if you skip the value-add and just collect the 845 rents and pay the mortgage? Or is the whole thing dependent on turning units.

@verity, at a 1.25x sizing it pays the debt and not much else, which is fine if you are patient and terrible if you needed the money back. What I would push on, meridian, is the cap rate you are implying on the exit. You bought at 6.85 and you are quoting value at 6.75. That is a small assumption doing large work.

Three buildings on one parcel and twelve units. Did you pull the zoning and confirm all twelve are legal and the parking count still complies? I have seen the twelfth unit turn out to be a converted basement that the assessor lists but the ordinance does not, and that is a lender problem at refi, not a today problem.

You said you passed on this operator twice before. What changed the third time?

Five year fixed on 25 year amortization means you have a balance around 505k at year five with nothing amortized away that matters. What is the prepayment structure, and are you assuming a refi or a sale at that point? I am trying to learn how the paper side of these actually ends.

Cast iron stack for 11k on a three building walk-up sounds like you got one riser and not the whole system. Did they camera the other two buildings after, or are you carrying that risk into year two?

47k of operating expenses on 124k of collections is 38 percent, and that is not a real number for a 12-unit with seven turns in it. Taxes 14k plus insurance 13.1k is 27.1k, so you have 19.9k for management, repairs, utilities, trash, and admin. Management at 8 percent alone is 9.9k. Where did the turn labor and materials go, and where is the reserve line? If the answer is that turns were capitalized against the 96k and reserves are zero, your stabilized NOI is not 79k.

What did the operator actually get paid? Acquisition fee, management fee, promote? I ask because the fee stack is usually the difference between a deal that works for the operator and one that works for the check writer.

What rights did the 340k actually buy you? Approval over capital spend above some threshold, removal for cause, access to the bank statements rather than a quarterly summary. The 24k extra wire at the table is exactly the moment those documents get tested.

The month five stack failure pushing two turns to month nine is the most familiar sentence in the post. Mine was a sewer lateral and it moved three units by ten weeks. Nobody's model has a line for the plumber who cannot come until the 20th.

Sizing on trailing DSCR is why the insurance move hurt you twice, once in the expense line and once in the loan proceeds. Did the lender rerun on the 13,100 binder or on a pro forma insurance number, and did they hold you to a debt yield floor as well as the 1.25x? Those two tests do not always bind at the same place, and every lender words them differently, so it is worth getting your own quoted in writing.

How was the 340k papered? I am trying to understand where a passive check like that stops being a joint venture and starts being a security. That one is a securities lawyer question, I know, I just want to know what shape yours took.

Would you rather have owned the whole thing and run it yourself for the same cash, or does the operator slice buy you enough peace to be worth the split?

@ledger is right about the expense line, so run it his way. Put a real 400 a unit reserve in and a 9k repairs line and you land near 73k stabilized rather than 79k. At 6.75 that is 1.08M against 986k all in, which is a real but thin spread for the risk you took at the closing table. Then move the cap 25 basis points and you lose about 40k of that. Your return in this deal is mostly the rent roll going from 845 to 1,050, and it only survives if the 1,050 holds when the new supply in your submarket finishes leasing up. Which submarket vacancy did you underwrite, current or trailing twelve?

25k wind and hail deductible on three roofs you are already replacing part of. One hailstorm and your gap reserve is gone. I have taken that trade too and it works right up until it does not.

426k of cash to control 890k of property, and then 24k more at the table. Is that ratio normal for this size, or did the DSCR test make this deal unusually equity heavy?

Four carriers in six days is fast work. The other thing that shows up at this size is vendor pricing changing once the building sells, landscaping and trash especially. Did the operator rebid those or inherit the seller's contracts?

Was this brokered or off market, and did you have your own representation or the listing side on both ends?

@halyard beat me to it. I am building a list in a market like this and what I want to know is whether the seller's expense schedule being wrong on insurance was carelessness or a story they were telling. Meridian, did the trailing bank statements match the schedule?

On the documents, I would want to see how cash flows before any refi event, whether the operator's slice sits behind your capital until it is returned, and what happens to the 24k you wired above your commitment. If that extra money went in as ordinary equity rather than a preferred loan, you paid for their shortfall at your own dilution. Worth checking what the agreement actually says on that, because the language differs a lot between templates.

Curious who manages the units day to day at twelve doors. Third party or the operator's own people?