May 6, 2019

JF1707: Apartment Syndication Case Study #3 | Lessons Learned From Another Deal Sold


Frank and Joe are having another case study conversation of a recent deal which they took full cycle. The property had its own unique set of challenges they had to overcome to make this deal work. From unexpected repairs to the outside and foundations, to replacing an entire new fence around the property. They also did a lot of things right with the deal, and we’ll hear about that too. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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“Now we do our own property condition assessment” – Frank Roessler


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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff.

With us today we’ve got Frank Roessler. How are you doing, Frank?

Frank Roessler: Very good. How are you, Joe?

Joe Fairless: I am doing well, and welcome back to the show. Best Ever listeners, you recognize Frank because you’re a loyal listener. He is the co-founder of Ashcroft Capital. We formed Ashcroft Capital and we have exited some deals; the purpose of this conversation is to talk about the lessons learned from a deal that we exited, so it’s a case study conversation. It’s not to beat our chests about “Hey, look at us, this was a good deal”, it’s to discuss the stuff that we learned, and ultimately to help you out whenever you’re doing your own deals, so that you can learn from the things that we came across, the challenges that we came across when we were executing the business plan of a multimillion-dollar apartment community.

With that being said, we’ll go ahead and dive right into it. Today we’re gonna be talking about a property called Carrolton Oaks. Best Ever listeners, by the way – if you’re curious about Frank’s background, then just go to or listen to a previous case study conversation. So we’ll get right into it…

This deal that we sold fairly recently, Carrolton Oaks – how should we start our conversation, Frank? What’s the best way to kick this off?

Frank Roessler: I was gonna say maybe let’s just start off by talking about what drew us to this investment and why we liked it. The reason I would say that is because Carrolton Oaks really represents everything we look for in a value-add property. It’s really right down in the middle of the fairway for us. Ashcroft Capital – we’re value-add guys, we like to by properties with full meat left on the bone; something that a previous owner might have left on the table for us, where we can go drive net operating income to whatever business plan we create, and then hopefully return our investors a nice, strong multiple. That is indeed what happened on this property, and I think it’s because, like I said, it’s everything we look for.

Carrolton Oaks came across our desk — it was actually the third property that we did here at Ashcroft Capital, and it came across our desk because it was a marketed deal. This property was a nice-sized property, 320 units. With a property of that unit count you’re gonna get some good scale of economy; hopefully a lower price per door on expenses like payroll, turn costs, marketing, things like that. So good size.

Secondly, it was being sold by a non-institutional group. It was bought by the patriarch of a wealthy family, who passed away, and his daughter is the one who sold this to us. Joe, you might remember she did a buyer sales call from Cancun, while she was sipping a drink.

Joe Fairless: Yeah.

Frank Roessler: That’s unusual, but what we like about that is usually when you’re buying from a group that is not institutional, there might be some efficiencies or inefficiencies at the property which we can help tighten up, and hopefully reduce expenses, which will drive net operating income.

Another reason why we liked this deal was that they had not renovated any units. They had bought this deal several years back; as I said, the daughter inherited this property, and now she was just looking to exit. She was actually a full-time eye doctor, not a full-time property owner. So because they had not renovated any units, and other comps had in that area, we saw an opportunity to push rents, and improve the community, improve the quality of life at this asset, and get that multiple that we always seek out.

The market itself – we always do a lot of homework on the submarkets that we look at, and the market itself had a lot of projected rental growth underneath it. It’s Carrolton, Texas, which is just North of the city of Dallas. It’s kind of a submarket of Dallas-Fort Worth, in a good – not great, but a good school district; Carrolton-Farmers Branch Independent School District was there, so that was another box that was checked.

Another thing that was great about this property is it was infill. When we say infill, that means there’s not a lot of land to be developed around the asset, but it was infill based on single-family homes. So yes, there were a couple comps, but it’s not like apartment community row, where we’re one of a dozen apartment communities. It was us, a property next door, and then another comp a mile away. Everything else was single-family homes.

What we like about that – and this was similar in Woodglen Village actually, the first property we bought… It was that it creates a desirable place for families to live. Because if you can’t afford to go buy a $350,000 to $500,000 home, you can rent in a good school district, be around  a great residential suburb, have your children go to a good school. So it was very desirable for families, and we like to own communities where families want to live. They’re more long-term, stable residents, they tend to be consistent, pay their rent on time, and they also tend to really appreciate what we do for the properties. They are looking for their unit to be a little nicer; they like nicer appliances, and cabinetry. And because they’re families, they typically have higher household income to afford to pay a small premium for that.

Like I said at the beginning of this call, it was right down the middle of the fairway for everything we look for… And that might sound easy, but when you get into it, as you know, Joe, every property usually comes with some good and some bad. There’s usually never the perfect asset for value-add. I’m not saying this was perfect, but it certainly checked a lot of the boxes that we look for. So in terms of just a place to start, it was our value-add deal.

Joe Fairless: Yeah, yeah. Just curious, on the school district front – let’s say the school district (and it wasn’t great), instead of it being good, it was below average. Does this deal still pencil, if it’s a below average school district?

Frank Roessler: Well, that would be one chink in the armor of this deal. There’s always a price for every property, so to say it wouldn’t pencil – I don’t think. But what realistically would happen is our price might lower because we might say the submarket is not as desirable, families might not wanna live here, so we might not be able to get the premium we need to do these renovations. So then our business plan might change, our purchase price might change, and unless the price that the seller wanted changed, we just probably wouldn’t be able to get the deal.

As we always say, we underwrite somewhere between 75 and 100 properties we buy one, and usually, due to a few or many things that just don’t check our boxes, we’ll either not offer, we’ll offer the price that makes sense, and we just won’t get the property, because there are some other aggressive buyers that will drive the price higher.

So it would have penciled at a price, but probably it just wouldn’t have gone our way.

Joe Fairless: You mentioned there were some good things and some bad things. What were some challenging things that you think we should talk about?

Frank Roessler: I would say — as I mentioned, this was the third property we did, and I always like to talk about these… And this was a very successful investment, but I think part of the purpose of these calls, as you said, is to hopefully give a lesson or two that we had on these properties, and for your listeners to learn from this example, versus learning the hard way and doing it on their own.

One of the challenges we faced was definitely deferred maintenance. I will say though the third-party report came in very clean – it didn’t recommend new roofs, new paint, foundational issues… They really didn’t. Though that happened, we certainly experienced a lot of issues at this property. Now, none of them were extremely high, but we had foundational issues on three properties. When you get in there, there’s settling issues. Doors aren’t closing properly.

It turns our Carrolton — we did a tremendous amount of homework, but you can always do more… But it turns out Carrolton – the soil in that area is very soft, and continuing to settle. And this community, along with several houses in the area, has some settling and foundational issues, and we had to spend money on about five or six buildings, do tuckpointing and sure up the foundations, that we didn’t anticipate. That takes money away from other projects that you penciled for, of renovating the units, and repainting the property, things like that. So that was one issue we had.

Another was just drainage in general. We didn’t get to tour the property when there was heavy downfall, so it’s hard to know how drainage is going to work on the property without really seeing that. A couple months after we bought it there was just pools of water… And there’s a lot of acreage on this property too, and there was lots of areas where irrigation systems were either shut off, or not working properly, or the drainage systems of the building weren’t routing water properly. This led to other foundational issues… So we spent a lot of money turning back on those irrigation systems, rerouting drainage and getting the water away from the buildings when it would rain. That’s another project that I wish our engineers — or maybe we would have instructed our engineers to possibly pay more attention to.

And then others are just things that are really hard to identify. The entire perimeter fence was one thing that we should have paid more attention to; it started falling apart after we bought the deal, and we had to replace that whole fence. And when you have several hundred feet of a perimeter, that can get very costly, too.

You know, I don’t wanna beat this up too much. We did a lot more right than wrong on this deal. But if I could just impress upon the listeners one thing – don’t just settle for the third-party property condition assessment; a lot of times they’re not good enough, and they’re not doing the due diligence that you will need… So get your own engineers out to this property and spend a little bit more upfront. This was a 320-unit property; probably for another 100k in closing costs we could have had a few more professional engineers out there, someone looking at the foundations and the irrigation, and someone looking at the mechanics of the property. I’m not saying that didn’t take place from our third-party, but we didn’t do it internally, and we probably should have on this deal… And we started doing that subsequently.

Now, I think starting on maybe the deal right after this, we have the third-party which our lender requires us to do, but then we spend our own dollars and we get our own property condition assessment reports done. So we don’t just rely on those. And often our own is much higher and much more conservative, and it gives you not only projects that you need to get done if you were to buy this property day one, but also projects that are just kind of warning projects. Like “These roofs – I’m not saying you have to replace them, but as your engineer, you’re paying me to give you a number, and I think in five years you might have to replace all these roofs. Here’s a potential bid for it.”

We paid a lot of attention to those internal property condition assessment reports. We now make  sure either we’re covering the things that we think we have to do on top of it, or we’re preparing a sufficient contingency fund in order to cover any rainy day projects.

Joe Fairless: When the dust settled on this deal, what were the final investor returns? Do you have that in handy?

Frank Roessler: Yeah, I do. We did very well on this deal. We bought right, we negotiated right, and we closed at a 6.1% cap. We increased the value from the purchase price to sale price by 61%, in just over 18%, so that created an IRR of 42.2% on a project level. Pardon me, the valuation increase was actually the Alara. Carrolton Oaks – we increased the value by 32%, which created an IRR of the 42.2%. That created an equity multiple of 1.7 for our investors, and over 18 months it definitely made our investors very happy.

So this was a very successful deal. You don’t often see IRRs in 30’s, or high 20’s even, and we hit a 42 on this property. We had almost all of our investors 1031 their proceeds from this deal to another deal, so this was a very great deal for us.

Joe Fairless: So we talked about the school district – that would have changed things a little bit, but  it’s tough to identify really how much. What would be one thing about this property that if we took that one thing away, that type of return would not have been able to be achieved?

Frank Roessler: I would just say the comps, the submarket. So if this was a property where we theorized if we renovate, there will be a demand for a nicer unit, and if there’s the demand, then you can charge a higher premium – if you would have taken that away (and we certainly see submarkets like this), then you should think twice about it. You might not get that return on your investment for renovating these units. You wanna do a sufficient amount of market research to make sure you’re looking before you go leap and spend all those dollars… Because you would not wanna be in a project after closing, and then discovering “Oh my goodness, these residents don’t really care about nicer units, nicer cabinets, floors or light fixtures. They’re just looking for a place to live, and don’t care about the quality of it.” And there are plenty of places like that, that if you’re not careful, you might step into it.

Joe Fairless: I enjoyed our conversation, as always, Frank. Thanks for talking through the case study. Best Ever listeners, if you want to learn more about our company, just go to, and you can go learn more about what we’ve got going on… But you probably already know about us anyway, since you listen to this show.

Some things that Frank mentioned, that we learned through this process with Carrolton Oaks – the deferred maintenance, drainage, and perimeter fence… Basically, having a third-party do the due diligence like the lender requires – you’ve got to have that anyway, but in addition to that, have your own property condition assessment completed; that way, you’ve got two objective perspectives on the assessment of what needs to be done.

And ultimately, making sure that your fundamentals are in place for the opportunity. As Frank mentioned, if we weren’t able to achieve the rent premiums, then that’s a problem. So we were in the right market, and it was just a matter of tweaking some of the business plan… Which there will always be some tweaking of the business plan on an ongoing basis when you have 300 units, so you’ve probably got around 1,000 people living in a small footprint. Anytime you’re dealing with that many people, there’s always business plans and circumstances that are evolving, and it’s a fluid situation… So it’s just being able to make sure you’ve got your fundamentals right.

Frank, thanks again for being on the show. I hope you have a best ever day, good catching up with you, and we’ll talk to you again soon.

Frank Roessler: Likewise. Thank you, Joe.

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