Jerome Myers is an asset manager for commercial real estate in Virginia and North Carolina who sat down to share some of his personal investment experiences on the Best Ever Show podcast. He also spends his time working as a commercial real estate investor, a business strategy consultant, and an executive coach.
Currently, he is in the middle of a 23-unit apartment complex that is completely vacant, but he has been able to close more deals while working on this one. This is his first investment deal. It is a multifamily project, and he had no experience with the asset class at the beginning of the project. To overcome that challenge, he had to find partners who were more knowledgeable. This initial deal is providing essential skills and experiences that can be applied to his following deals. The property was purchased for $1.3M, and the renovations are currently about 60%–70% completed. Myers and his partners hope to complete the renovations and start the lease-up process by summer.
Because Jerome had little experience with this property class, he was brought in as a strategic partner. Specifically, he created a business development plan and the initial construction strategy. He also prepared and executed PowerPoint presentations to banks. The presentations displayed true numbers for expansive improvements. These improvements covered cosmetic issues as well as significant deferred maintenance. As a result of the planned improvements, the group plans to increase the rent from $695 per month to $1,195 per month. Two units are currently pre-leased, but all units are empty at the moment. The group needed to find partners as well, and this fell on Jerome's plate.
According to Jerome, the property had significant plumbing issues, so it was not feasible to renovate one unit at a time as the units became vacant. His partners also preferred to look for mom-and-pop owners who have their tenants on month-to-month or short-term leases.
While this project is still in the works, Jerome and his partners have been able to close more deals. One of these is 28 units in Greensboro that comprise two quads and a 28-unit multifamily building. Initially, he found the project on his own, but he lacked the experience to get independent bank financing. He needed to find partners to make the deal work. His partners had the multifamily experience necessary to qualify for financing.
He found this commercial real estate project through a direct mail campaign. Specifically, he sent out letters to approximately 60 property owners. He found those owners and their contact information through the county’s records. The response rate was outstanding. In fact, he pulled four leads from the mailer and closed on one of those properties. The letter specifically stated that there are many reasons why a seller may wish to sell a property that is not listed.
The seller for the deal that ultimately closed because of that direct mailer was confident from the beginning that Jerome and his partners could close. He saved time and money on marketing costs. He also saved money on a broker fee, so he had a lot of value built into the deal. After the initial conversation with the property owner, Jerome toured the property and negotiated an LOI with the seller. The property closed approximately 75 days later.
The property owner initially asked for $860K for the property. Jerome conducted thorough due diligence. Rather than looking at rents on a spreadsheet, he took the additional step of ensuring that the rents collected matched the spreadsheet numbers. Ultimately, Jerome saw that the property owner’s asking price was nearly aligned with the property’s value and cash flow. However, because of some issues they discovered with the property, the deal closed at $840K. There were also some seller concessions that were applied at closing.
From this deal, Jerome learned to ensure that the utilities are on in all units at the time of the inspection. This was not the case with this particular project. This led to the discovery after the closing of a ruptured pipe and a few appliances that were not working properly. He had this experience on another project that he worked on as well. For that property, he learned after closing that the AC system needed to be replaced, and this was a major expense.
Another deal that Jerome worked on was a 26-unit multifamily project that was also in Greensboro. He found the project on LoopNet. The sales price was $1.375M. The project was sold as student housing with leases at $420 per bedroom. However, many of the two-bedroom units only had one tenant. They were leasing for $420 rather than $840. Jerome and his partners decided to transition this away from student housing to collect full rents and to stop the all-utilities-paid policy to further increase profits. Initially, the project had many leases expiring at the same time, which aligned with the end of the semester at the local college. They needed to have a large cash reserve to swing that vacancy. Notably, the appraised value came in much higher than the sales price. It was $1.75 million, so this has been one of the most lucrative deals that Jerome has been involved in so far.
When Jerome Myers talks about his best commercial real estate investing advice, he states that making sure the numbers work is crucial. Some investors try to close more deals for the sake of getting a deal even if they do not make sense on paper. Be confident in the potential of a property before getting fully engaged. Jerome plans to continue applying lessons learned to find partners and close more deals in the future.