JF1227: 3 Apartment Buildings Closed In Just 12 Months with Mark Yuschak
According to Mark, he was “fortunate enough to get laid off”, which allowed him to focus on real estate full time. Now Mark is a residential real estate broker and investor. He’s done 50+ flips has 20-25 rental SFR and now he owns 3 apartment buildings. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Mark Yuschak Real Estate Background:
– Residential Real Estate Broker with American Associates, Inc Realtors
– Over 8 years experience in real estate as a broker and an investor
– Has completed short sales, owner financed, estate purchases, HUD and REO transactions in portfolio
– Have provided transactional funding and hard money loans for other investors
– Owner of multiple rental properties and an apartment building, and done several flips and rehabs
– Based in Grand Blanc, Michigan
– Say hi to him on Facebook at Apartment Investors of Michigan or email@example.com
– Best Ever Book: Art of the Deal by Donald Trump
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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. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.
With us today, Mark Yuschak. How are you doing, Mark?
Mark Yuschak: I’m doing well, thank you.
Joe Fairless: Nice to have you on the show. Mark is based in Grand Blanc, Michigan, which is a stone’s throw from where I was born, Flint, Michigan. I think I was actually technically born in Grand Blanc.
A little bit about Mark – he is a residential real estate broker with American Associates. He has over eight years experience in real estate as a broker and as an investor. He’s done short sales, owner-financing, estate purchases, HUD and REO transactions, and he has that in his portfolio. He is the owner of multiple rental properties and an apartment building, and he’s done some flips along the way, as well. With that being said, Mark, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Mark Yuschak: Certainly, thank you for the introduction. I did not start out my career as a real estate investor; I originally started out working in the corporate world initially, in the automotive industry, and then migrated over into the banking industry, and that was about the time when the market started to slip, so I focused more at that time on picking up rental properties and flipping properties, while working simultaneously in the corporate America world with a large bank.
In about 2010 I was fortunate enough to get laid off, and at that point I was able to exclusively focus on investing and being a real estate investor and agent. I never took any unemployment compensation or anything like that, just hit the ground running the day that I lost my job seven years ago… And ever since, I have done 50+ flips, and acquired 20-25 single-family rental properties, and now own three apartment buildings.
Joe Fairless: 50 flips… How many rental properties did you say?
Mark Yuschak: 20-25 single-family homes. They come and go as I sell them off to buy better ones, or at this point starting to sell them off just because the market is so strong and recapture some of the equity.
Joe Fairless: Let’s talk about the single families and what you’ve just said in terms of recycling some, and either upgrading to better ones or putting it into something else. Talk to us about your approach.
Mark Yuschak: Many of these were acquired back in 2010, 2011, 2012 and even some in 2013. My strategy was everytime I’d flip a property, I would not spend the profits, I would retain them and buy at least one, perhaps two rental properties outside of the area that I was flipping, so in a higher cashflow marketplace is where I was buying my rental properties… And I was literally just rolling the equity from a flip into a rental, and I just kept on doing it over and over and over.
Now that the market has come back so strong, some of these properties are in desirable areas and they’ve gained a lot of equity, so the strategy has been to sell off some of those ones that are holding a massive amount of equity, so we can purchase more apartment complexes.
Joe Fairless: Are you buying the apartment complexes in Grand Blanc?
Mark Yuschak: No, we’ve bought two in Lansing, and one in Fowlerville.
Joe Fairless: What large city is close to Fowlerville?
Mark Yuschak: Fowlerville is almost exactly halfway between Brighton (MI) and Lansing (MI).
Joe Fairless: Okay. How far away is Lansing from Grand Blanc?
Mark Yuschak: Approximately one hour, and the same with Fowlerville. They’re each about one hour away from my home base.
Joe Fairless: And why not buy in your home base?
Mark Yuschak: I’m not necessarily opposed to it, but we go where the deals are, and at this moment in time that’s where the deals have been, and they’re still in good performing areas; they’re not in a bad or dilapidated area, so they’re still viable for us. And they’re within driving distance still.
Joe Fairless: And you said that you have two in Lansing and one in Fowlerville?
Mark Yuschak: Correct.
Joe Fairless: Let’s just go through the progression that you acquired them, so can you tell us the details of each of them?
Mark Yuschak: Sure. The first one was acquired just over a year ago, in September 2016. It was a property that actually my partner located on LoopNet, and we immediately went and looked at it after contacting the listing broker.
It’s a 63-unit property, relatively new, built in 1994, and it was originally built as a senior citizen’s property, with a deed restriction at that time. The owner that had it was running it very poorly, with outrageous expenses. The expenses were running between 70% and 75%. The building itself was in fantastic condition, all the major cap-ex was done, but it was not cash-flowing well for them because it was being run very poorly, with high expenses.
So we submitted a full price LOI and inevitably got it under contract shortly thereafter, and financed it with 20% down using a local credit union.
Joe Fairless: Did you end up paying what you had the LOI written out to for purchase price?
Mark Yuschak: We did in the purchase agreement, but inevitably after we went through due diligence I believe we got another $50,000 or $60,000 price reduction, because of some discovered issues that we’ve found with the building.
Joe Fairless: Do you remember what those issues were?
Mark Yuschak: The big one was the parking lot. The issues with the parking lot were noticeable when we initially looked at the property, but we didn’t understand at the time what the extent of those repairs were and the cost of those repairs, so we were able to renegotiate in lieu of what we discovered.
Joe Fairless: And what did you end up buying it for? How much?
Mark Yuschak: 1.6 million.
Joe Fairless: And you said you did 20% down with a local bank?
Mark Yuschak: Correct.
Joe Fairless: Okay. The business plan that you have – was it essentially to optimize the operation, so that the expenses aren’t as high?
Mark Yuschak: That was exactly it – to optimize the expenses, and then where applicable, increase rents. We have been increasing the rents. The rents were not too far off from market. There was room to maybe bump them 5%-8%, but this was more of a play on reducing expenses.
Joe Fairless: What were the expenses that you were able to reduce?
Mark Yuschak: It was an owner operator that we bought it from, and their in-house expenses as far as an on-site manager and two full-time on-site maintenance men were extraordinarily high. They were running about $90,000, which was cutting into the NOI drastically.
Joe Fairless: Comparing that structure to now, what do you have for your help on-site?
Mark Yuschak: We’ve employed a property manager who is based in the East Lansing area. They’ve got a resident manager who manages this property and the other one that we have in Lansing, so it’s a shared property manager between two facilities, and we’re running about 50%-55% expense ratio on each of these properties now.
Joe Fairless: You said you have a property manager who doesn’t live there, and a resident manager who I assume does live there, correct?
Mark Yuschak: No, the resident manager does not live on-site. The property management company has one of their employees who is assigned to that property and is the resident manager.
Joe Fairless: I’m with you, I was a little confused. Okay, so you have a property management company that employs a resident manager who does not live on-site.
Mark Yuschak: Correct.
Joe Fairless: Alright, got it. I’m with you. Before they had an on-site manager and two full-time maintenance people… What do you have now for maintenance?
Mark Yuschak: We’ve got a maintenance person that is utilized on an as-needed basis, so there’s nobody who’s physically on-site, but they’re called in as work orders come in, to do whatever the task is at hand. Since they’re based only in East Lansing, which is not long of a driving distance, they come on-site as necessary.
Joe Fairless: And that person is employed by the property management company? Is that correct?
Mark Yuschak: That is correct, yes.
Joe Fairless: Okay, cool. What about other expenses, because that was a big difference, but I’m sure there were other items if they were running so high, that now you’re much lower…? What were some other savings?
Mark Yuschak: The other major savings we had was the cost of property insurance. Our property insurance cost is about 40% less than what they were paying, and I believe that’s more just a function of them not shopping around for better rates.
Joe Fairless: When you take a look at the different options, or when you were taking a look at the different options, what was your approach when looking at lower annual payment, but higher deductible, lower deductible, higher annual payment?
Mark Yuschak: So we’re not huge risk-takers in that. We were prepared to have a high deductible, but a the same time we were trying to keep the premiums at a reasonable rate, so we went literally middle of the road on what we ended up choosing for a policy with regards to the deductible options.
Joe Fairless: And what is it?
Mark Yuschak: We ended up at a $5,000 deductible, and I think we could have gone as high as $10,000 or $12,000 even… [unintelligible [00:11:18].00] as low as $2,500.
Joe Fairless: Do you remember how much your insurance costs annually?
Mark Yuschak: Our insurance cost annually rate now is just under $8,000.
Joe Fairless: Okay. So you have a $5,000 deductible and the annual cost is about $8,000, right?
Mark Yuschak: Yes.
Joe Fairless: Okay, cool. Anything else on that property that is noteworthy, that we haven’t discussed?
Mark Yuschak: Not necessarily. That property is doing very well now. We had some cap-ex repairs that we needed to do, but we didn’t pay for those necessarily out of pocket, we just did them out of cashflow. It was more cosmetic, by replacing carpeting in the hallways, painting the hallways… Just freshening up the building a little bit, which then allowed us to push the rents to new prospective tenants. Because then you’ve got a cleaner facility, that’s more desirable for somebody to live in.
Joe Fairless: And I know it’s impossible to know what other people were thinking, so I’ll state that prior to asking the question, but I’m still gonna ask you the question… Why do you think other people were passing it up on LoopNet?
Mark Yuschak: I don’t know that they necessarily had an opportunity to pass it up, because we jumped on it the first day…
Joe Fairless: Oh, okay.
Mark Yuschak: Of course, the broker told us he had back-up offers…
Joe Fairless: Sure.
Mark Yuschak: I don’t know how true that is, but at an 8, 8.5 cap where we bought it, I tend to believe that there would have been additional interest.
Joe Fairless: What about the next property?
Mark Yuschak: The next property – we bought an entire block of townhomes in Fowlerville, and both properties are newer as well, they’re built in 1993. It’s some townhomes, it’s some duplexes, and there was also one single-family home included in the package. That property was in a really nice turnkey position. There wasn’t a whole lot of repositioning to be done with it other than increasing the rent to a certain extent. They were under market by about 10%, and the big value-add on that property was in billing the tenants back for their water and sewer usage. There were already individually metered for gas and electric, and the landlord pays the water. But by implementing a system where we’re getting compensated back by the tenants for their water usage, that reduced expenses and then thereby increased NOI.
Joe Fairless: What’s the impact on that NOI?
Mark Yuschak: That impacted our NOI with the increase of the rents and the reduction of the expenses by about 15%.
Joe Fairless: 15%. And do you know off the top of your head what those numbers were and what they are now?
Mark Yuschak: I don’t have those readily available in front of me.
Joe Fairless: Okay, just curious. You bought an entire block of townhomes… How many units does that comprise of?
Mark Yuschak: That comprised of 23 units, and we bought them for $50,000/door.
Joe Fairless: Did you cobble that together, or was it presented to you as a package?
Mark Yuschak: It was presented to us as a package, so it was a single owner, it’s all under one parcel ID number, and that’s an individual person… It was another owner-operator who owned it.
Joe Fairless: What about the third apartment community?
Mark Yuschak: The third apartment community is a 50-unit and it’s located about three miles from our other property that we already own in the city of Lansing. This is a property that was in a little bit rougher condition; it had a lot of deferred maintenance, and it had owners who were not running it very efficiently or effectively.
It was a property that I actually located on Facebook, of all places, in the Lansing Area Investors Group; somebody had posted that they were potentially gonna be selling a multifamily property, so I reached out to them directly to get the details. One thing lead to another, and we ended up getting it under contract. It’s truly the epitome of an off-market deal that we were able to put together. It was fantastic.
Joe Fairless: What did you get it under contract for? How much?
Mark Yuschak: We bought that building for 1.2 million, which is about $24,000/door.
Joe Fairless: How much do you anticipate putting into it?
Mark Yuschak: We’re gonna have to put about $125,000 into it. There are multiple buildings, and there were some questionable roofs, as well as the townhomes have individual furnaces, and the furnaces are original from 1983, so they’re definitely well beyond their useful life and will need to be replaced.
The great thing about this deal though is we syndicated it and didn’t have to bring any of our own money to the table. We syndicated the portion of our down payment, and then used bank financing for the balance.
Joe Fairless: Did you also raise money for the improvements, that $125,000?
Mark Yuschak: We did, yes. The majority of that we did raise, and then the balance of it we’re going to utilize from cashflow.
Joe Fairless: Okay. How much of the 125k are you going to allocate for the cashflow to pay it?
Mark Yuschak: Approximately 40k.
Joe Fairless: Okay. What type of structure do you have with investors on that deal?
Mark Yuschak: So we raised all the necessary amount for the down payment and the cap ex, and my partner and I have a 50% interest in the property, and the investors who are in on it with us have the other 50%, but then it’s split equitably based upon how much they contributed to the transaction.
Joe Fairless: Sure. So it was a straight 50/50, and their 50% is divided up based on how much — pro rata, basically.
Mark Yuschak: Yes, that’s exactly it.
Joe Fairless: Cool. No preferred return?
Mark Yuschak: No preferred return.
Joe Fairless: Okay. Just out of curiosity, what are the projections for that deal in terms of profits to them, over what period of time?
Mark Yuschak: We’re anticipating a 22% cash-on-cash return over the life of the investment, and the majority of that is going to come not necessarily from cashflow, but the equity gain when we resell the property, because we’ll have increased NOI drastically by mainly increasing rents.
Joe Fairless: Yeah, outstanding. Did you take an acquisition fee, or is there an asset management fee at all in this deal?
Mark Yuschak: We did not take that, no. No, we have a 50% override, and we thought that was more than fair.
Joe Fairless: Cook, good stuff. Based on your experience – you’re focused now on, it sounds like apartment buildings, is that correct?
Mark Yuschak: That is correct. However, I’m still a very active single-family home flipper. I won’t say no to a deal really, any which way I can get it.
Joe Fairless: Well, based on your experience as a real estate investor flipping properties and then having a large portfolio of homes, and then scaling up to apartment buildings, what is your best real estate investing advice ever?
Mark Yuschak: My best advice would be don’t sit on the sidelines and over-analyze something… The old saying, paralysis of analysis. Jump in, take some action, network with people, and don’t be afraid of making some mistakes.
Joe Fairless: As far as jumping into networking, what’s a way that you’ve done that?
Mark Yuschak: I’ve done it multiple ways. A lot of it comes from going to the local real estate investing association meetings. Those groups are found — pretty much every large town has a REIA group; it’s just a matter of doing a Google search and finding out which one is nearest to you. Then in addition it’s participating in some of these different online portals; there are a lot of different investing forums that are out there in which you can engage, and even if you choose not to engage, just read and learn. You can learn a lot just from other people’s successes and mistakes.
Joe Fairless: And then as far as mistakes, we’ll ask what’s a mistake you’ve made in a transaction — well, I’ll just ask it now… What’s a mistake you’ve made in a transaction?
Mark Yuschak: The biggest mistake that I’ve made was buying properties in a not desirable area, in which I had a lot of problems with break-ins, tenant issues, poor tenant quality… That would have been my biggest mistake. If I could change anything, it would have been not to buy a couple of these properties that were in undesirable areas. And these are single-family homes, so it’s not as painful to get away from them, but it’s something that I would have not done initially.
Joe Fairless: Once you accidentally do that, what steps can you take to try and clean it up as much as you can?
Mark Yuschak: I think the biggest thing is trying to make the best of the situation, of course, but by doing it through finding tenants who are going to mitigate your loss, and the property loss. So tenants who aren’t going to beat up the property, even if that means that you’d have to give them a lower rent price to attract them. In the grand scheme of things, even though you’re foregoing some cashflow, you’re saving some money on expenses with rehab or when they go vacant… And literally, just holding on to them until the market improves enough that you can sell them, if you bought them in a down market, or take the loss at the time being and move on, and just get past the mental anguish.
Joe Fairless: Yeah, it’s a good strategy, especially when you’re exiting, because a prospective investor looking at purchasing the property will see that you have had a long-term tenant and they’re under market, so he/she might think, “Oh, well there’s opportunity here for upside, and I’m getting a really good deal.” In reality, it might not be the case because the market level rent might bring in someone who doesn’t take as good care of the property, but you could at least sell that story for the prospective buyer.
Mark Yuschak: Exactly.
Joe Fairless: Are you ready for the Best Ever Lightning Round?
Mark Yuschak: Yes.
Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.
Joe Fairless: Alright, what’s the best ever book you’ve read?
Mark Yuschak: The Art Of The Deal, by Donald Trump.
Joe Fairless: Best ever deal you’ve done?
Mark Yuschak: The latest syndication deal, our 50-unit in Lansing, Michigan.
Joe Fairless: Why that one over the other two?
Mark Yuschak: Controlling an asset with no money out of pocket.
Joe Fairless: What’s another mistake that you’ve made on a transaction that you haven’t talked about?
Mark Yuschak: Not necessarily transaction-specific, but not getting started soon enough. I would have started doing this long before now.
Joe Fairless: Best ever way you like to give back?
Mark Yuschak: By helping other investors, doing these types of podcasts, sharing my information with them.
Joe Fairless: And on that, how can the Best Ever listeners get in touch with you?
Mark Yuschak: I can be found on my Facebook page, which is called Apartment Investors of Michigan, or via e-mail, which is firstname.lastname@example.org
Joe Fairless: Mark, I love that we talked about not one, not two, but three case studies of apartment buildings that you’ve bought within the last 12 months, right? All three.
Mark Yuschak: Correct.
Joe Fairless: The first one, we’ve got the more traditional apartment community, the 63-unit; I love the age of the property 1994. Since it was originally for senior citizens, did you have to do anything from an update standpoint, or just operations to change it?
Mark Yuschak: No, not necessarily. It was pretty turnkey from that perspective.
Joe Fairless: Okay, cool. Well, talking about that deal and what you brought to it, 20% down, 1.6 purchase price, the business plan, where you came across high expenses… You lowered those primarily in two ways; one was the on-site staff. The previous company had an on-site manager, plus two full-time maintenance people. That’s crazy for a 63-unit…! And you don’t have that. Then the other was the property insurance just shopping it out, and yours is about 40% less than what they were paying.
Then you got the other two… The 23 units that was cobbled together and presented to you, a bunch of smaller stuff on the same block, and the 50-unit where the value was coming in, fixing the deferred maintenance, and operating it effectively. A lot of it is in the operations, which is really interesting… Plus how you structured the deal – just straight, nice, clean 50/50, you and the investors. You don’t put any money in, they do. You do everything else, and you’re sharing the profits.
Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.
Mark Yuschak: Thank you.