Mike Swenson - How We Bought A 128 Unit Apartment!

We take you behind the scenes of our latest multifamily apartment acquisition—a 128-unit building we closed on for $6.6M—and break down every step of the deal: how we found and financed the property, the due diligence, the negotiation process, the renovation strategy, and the property's future. We share the numbers, projected challenges, and value-add opportunities that made this investment worth pursuing, while offering practical insights for both new and experienced investors. If you’ve ever wanted a firsthand look at how successful multifamily deals come together, this episode delivers a transparent, real-world blueprint for building wealth through apartment investing.

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Transcript

Why Investors Partner With Us

Mike Swenson 0:00

What we tell our investors is, like I'd mentioned, you can find deals that you probably can't find on your own. This one was off market. You can invest in deals larger than you could probably invest on your own, achieve economies of scale that are bigger than you can on your own, and get returns more lucrative than you could on your own, all without doing the work by yourself. And so that's the benefit of working with us. Welcome to the Real Freedom Show. We inspire you to pursue your passion to gain time and financial freedom through opportunities in real estate. I'm your host, Mike Swenson. Let's get some real freedom together. Hello, everybody, and welcome to another episode of Real Freedom, where we talk about different ways that people build time and financial freedom through opportunities in real estate. I'm your host, Mike Swentz, and if you want to get started on your real estate investing journey, check out our website, freedom throughrealestate.com. That's freedomthrureestate.com. We put all of our content on there, great stories to help inspire you to take action and pursue your career or pursue your goals through real estate. And today I am super excited to share with you more personal stuff, which is we recently closed on a 128-unit apartment building with our team. And so we want to talk about that deal and to be able to share that information with you. So sit back and relax, and we will go through all of that information. First things first, just to kind of bring you up to speed for those people that haven't followed along the episode or followed along the podcast that often. We're pushing about 390 units right now in terms of our portfolio that we've grown over the last probably four years. And so my passion has always been to have low barrier of entry for people to invest in real estate, to find ways to create a great economies of scale versus having to figure it out and learn all those lessons and do it on your own. And so we offer opportunities through syndication where people can partner with us and invest in deals that they they couldn't invest on their own, probably couldn't get big enough deals on their own. And they can do it 100% passively without having to swing a hammer, talk to a property manager, talk to a tenant, or deal with any hassle. It's it's completely passive to them. And so that's how we've been able to accomplish this. And so we've got this 128-unit apartment building. Like I mentioned, we just closed on it at the end of March 2026. And so I want to be able to share that information with you because we're really excited about it. And we think this is a great opportunity and excited to see how this is going to be a big benefit for our investors. And so, first things first, when I talk with people before I get into the nitty-gritty of the DL details, I always like to talk about why real estate, right? You're listening to a real estate investing podcast, and it's important for people to understand why we are doing this and what is investing through real estate gonna accomplish that other people or even other asset classes may not have. And so for us, we love real estate. Number one, because there's a lot of demand for rentals due to decline in home ownership. We know that home ownership rates are going down, and so the more opportunity that we have to be able to purchase property, we know that people can't build property fast enough with the increasing population. And so we see there's a lot of value there. Also, there's a lot of great asset classes. We're just focusing on what we do well and what we know, which is multifamily. And so we know demand is going to continue to go up, the population is gonna continue to grow, and they can't build stuff fast enough. So that's where we're looking for housing opportunities for people. There's a lot of great value add opportunities. That's really the focus on us. Primarily, we like to invest in Minnesota. That's where we're based out of, that's where our knowledge base is, that's where we have great property management contacts. And we know there's lots of opportunities where we can invest outside of that. We'll explore those in the future, but for now, we just want to stick with what we know and operationally what we can execute on. So that's been where we focused. And then we know there's lots of lots of wealth being made through real estate. It doesn't happen quickly, and I think it can happen quickly depending on the project, but we know it doesn't always happen that way. And so we're okay waiting and we're okay finding great deals that have those value add opportunities. And you know, one thing that we tend to forget as we're thinking about why real estate versus stocks and other opportunities, the way that I always explain it is there's lots of little buckets. What's really cool about real estate is you've got all these little buckets, and not all of them have to pan out or be a huge win for you, but over time, a few little buckets add up to a really big bucket. And so the different buckets that we talk about with investors and people looking to invest in real estate is number one, income comes from your tenants, right? So we have a mortgage every month. This house that I live in has a mortgage every month. I have to pay that mortgage. If I have a rental property, the tenants are paying for that mortgage. And so every single month, the income that is used to pay the mortgage on the property is coming from the tenants. With that, the mortgage balance gets paid down every month. Now, in this case, I'll share more details in the in the future. We have two months in or two years interest-only payments. So for two years, that's not happening. But with other properties, the mortgage goes down every month. And so when you buy more and more property, it's now turning into hundreds and thousands of dollars of principal that's getting paid down every month. So our mortgage balances, if we add up all 390 units, it's thousands and thousands of dollars that the balance continues to go down every single month because the tenants pay for the mortgage. As we add value, the value of the property is gonna go up. We're only taking out loans typically in the 2025 percent range for this property that we we just closed on. We're only putting down 11%. And so we're able to take advantage of some great seller financing. And so as the value goes up, we only put down 11%. The value of the property is gonna continue to go up. And so we have leveraged appreciation, which is awesome. Great tax benefits. We'll talk more about that cost segregation study, which we utilize, and so those benefits are there, and then people love that it's a tangible asset. I drive to the property, I go look at it, I can touch it. It's not a stock, it's not investing in something else, and so it helps to leave a legacy for your family tree. I always tell people I'm not expecting my kids to do real estate, and yet if they're excited about it and they want to learn more, I'm here to help them. But we're building a legacy that will hopefully lead to more wealth creation for future generations and give my kids opportunities that I didn't necessarily have growing up. And so those are the reasons why we love highlighting why do we do real estate and what does it mean? And so we talk about that with our investors. And so that's great information for you guys to know listening to this. We invest in commercial multifamily properties. We look at how do we increase income and how do we decrease or hold the line on our expenses? And so as we find ways to add value to the property, we're gonna increase rents, we'll increase fees. I always tell people though, there is a human element to this. We're not just going to jack up prices on everybody and tick off all the tenants, right? We understand these are hardworking tenants that have great jobs. They might be struggling paycheck to paycheck, and so we want to be able to help them. And so we're not just gonna continue to jack up rates. And so they're great tenants, we want to work with them. However, over time, we're gonna continue to have our rents be market rents as much as possible, find ways to add value to the building, maybe attract people that would be willing to pay more as we continue to make our properties nicer, and then hold the line on expenses. And so we can do that and add a bunch of value that way. And then we love working through a team. And so the cool thing about investing with us and investing with these larger opportunities is you know, we believe in if it's a it's also also been credited back to an African proverb proverb, but it goes, if you want to go fast, go alone. If you want to go far, go together. I totally recognize we could probably be moving faster on things if I just went by myself. But I love working with a team. I love working with great investors so that we can build something meaningful that's gonna last and so that we can do that together. And so we love working with the property managers that we have, the relationships that we have, different vendors to be able to go far together and help each other out to create wealth. And so, you know, that's what we focus on. That's why we love being a part of a team and why we have investors teaming up with us. And so what we tell our investors is like I'd mentioned, you can find deals that you probably can't find on your own. This one was off market. You can invest in deals larger than you could probably invest on your own, achieve economies of scale that are bigger than you can on your own, and get returns more lucrative than you could on your own, all without doing the work by yourself. And so that's the benefit of working with us. Mentioned we do that through syndication. So, about the market. So, this particular property is up in northern Minnesota, it's in the Fargo Moorhead area. We're on the Minnesota side there. Why Fargo Moorhead? So, a couple things. I know we can invest in lots of places in Minnesota. Whenever I find deals from people, my first question is always who's gonna manage this deal? As we're continuing to get more and more sophisticated and learning and getting smarter, we realize the value of great property management and using people that we know, like, and trust. And so we're finding these opportunities, working through management companies that we want to continue to work with. So it would be hard for me to pick a deal in a place where I don't have confidence in finding a great management opportunity now moving forward. We've had some challenges in the past with management, and so that's why we want to stick with and build upon the relationships we already have in place. And so we found a great property manager in this market. We said, hey, here's the deal we're looking at. Is this something you'd be interested on? And then we had that property manager also help to speak into some of our projections that we had. They're in the market, they understand the market, and so we were able to run that by them. Hey, are we off base in our projections? Can you help us? So this Fargo Moorhead market um has had some significant population growth. So dating back to 2000, um, the MSA, the metropolitan area as a whole, had a population of around 175,000. Just 25 years later, it's now grown almost by 100,000 people. And they anticipate that to grow close to 100,000 people over the next 20-some years. And so going from in the year 2000, roughly 175,000 people to the year 2045, you're looking at roughly 345,000 people in the MSA area. There's great growth that goes back to what I had talked about before. We know housing is going to continue to be short. And so this is a market where that happens, where we can have some good things going on. The labor force has grown there. 58,000 millennials call this area home, 7,000 more than the national average for this an area of this size. There's two major interstates that run through. So you've got lots of trucking operations that come through, which means there's going to continue to be businesses there. You've got some world-class universities that are there, technical colleges, lots of top education, which means that this area is going to continue to be strong because you have great educated people that want to stay and live there. So there's some great industry diversity as well. So great market. We're super excited about it. We're excited about the growth that it's going to have. This deal in particular, like I mentioned, 128 units off market. We found it through a great business connection that we have that has found some great deals for us in the past. Why did we do it? Number one, it's a property that's two to three times larger in terms of purchase price than anything we've purchased before. Now we do have 144 unit student housing building, but that purchase price was a lot less. So this one, it really stretched us in a way that we haven't been stretched before, but we got some great financing terms. So we are doing a wrap mortgage from the seller. The seller already has a relationship with a local bank. They're providing essentially the seller's providing financing to us to take care of the mortgage existing mortgage they already have in place with the bank. We talked to the bank, we got a letter from the bank basically saying, yes, we know what's going on and we're okay with everything that's going on. And so the bank reviewed all the documents. Obviously, the seller, we worked that out with them, similar to another property that we have. We ran that the same way. So the nice thing is we don't have to go out and get a new mortgage right now. With mortgages, right, it takes a lot of time and hassle to be able to get those done. We've had a lot of those done in the past, and so now we don't have to go through that. The seller is staying on as a guarantor on the property. Obviously, we have some personal guarantee stuff that we have to sign, but it allows us to get into a much larger property that would be a little bit maybe more difficult for us to qualify for at this stage in our careers and where we're at. So we work that out with the seller. The seller understands hey, we know about how much money's coming in. We know you should be able to pay for this mortgage, and we got some great financing terms. So, like I mentioned, two years, interest-on payments. And then for years three through seven, the next five years after that, we're gonna have an interest rate of 5.3%. So, as of right now, those are some great terms, much better than what we could get right now. And we did just close on a property a couple months before that and had a rate that was higher than that. So, some great financing terms. So we get in without having to go through the bank and qualify on our own and guarantee on our own. We get some terms that are very favorable for us, and we only have to put down 11% because of the current value of the property, the existing mortgage, and the guarantee from the seller. That was part of what the kind of the financing terms were. So we get in at a much lower price in terms of the capital that we need to bring into this deal. And then the we wouldn't have done all this if there wasn't some great value add. So, like I talked about, value add opportunities are really what our bread and butter is. We want to be able to find stuff, make it better, increase rents, hold those expenses, and add value to this property. And so this one was a property that had been mismanaged in the past. Without getting into all the nitty-gritty details in the past, we felt like the management company that we were hiring, who's in the market, has had properties similar to this in the past, could put together good financial projections. We feel like we can get this property to much better performing than what we currently had. And so this property is about 75 to 80 percent occupied right now. Most properties in the area are much higher than that. And so we felt like having new management come in would be able to increase occupancy over time. Now we're looking at a timeline of about 18 months. That's why we had two months interest-only payments. They knew let's give them two years, come in, increase rents, increase that cash flow so that in two years, when it comes time to be able to pay down the mortgage, we now have much higher income coming in and we can do that. So we've got about 30 to 35 units out of this 128-unit apartment building that we're going to add and increase the occupancy over the next 18 months. So that increases revenue by a lot, which will be great. Current rents, we're looking at about$70,000 to$72,000 a month. And if we're able to get to full occupancy and full market rents, that's projected to be about$100,000 a month. So$28,000 a month to$30,000 a month, we can increase the income. And so that's about 40%. So there's not a lot of opportunities where you've got already a bunch of people there, and within reason, in the next 18 to 24 months, we can increase that income by 40%. That's gonna be awesome. Not gonna be easy, and so I don't want to come on here saying that wave a magic wand, everything's gonna go great. I always tell people when we invest in real estate, it's real people and real problems that come up. So we navigate that, we problem solve. And so it's not gonna be easy to do that. It's gonna take some work and it's gonna take some money to be able to make that happen. The unit mix on this property 14 studios, 15 one-bedroom apartments, and 99 two-bedroom apartments. And so we're excited to have some of the larger, the two-bedroom properties. So, what did we do in terms of due diligence? We did site visits, we did a property inspection, and then us and the property manager, as well as some other people on our team, we literally went to inside of every single unit to get a sense of what's the condition, what types of repairs would need to be done, and then put together a budget for what that could look like. And so we had some things that came up during the inspection. We were able to negotiate that with the sellers, and so they did some work ahead of ahead of that, and then were able to give us a seller's credit for some of that stuff as well. So we were able to get our eyes on it, we had multiple eyes on it, and most importantly, we had our property manager, new property manager's eyes on it to be able to confirm what our assumptions were and what our projections were, which was really important. Operation strategy. What is these, what are these next 18 to 18 months to five years to seven years? We do anticipate typically with most of our apartments, we're looking at a five-year hold. This one, because we do have the financing in place for seven years, we may consider holding for seven years. These are all things that we communicate to our investors so they know this going in eyes wide open. We might hold for five, we might hold for seven. If it's lucrative enough and things are humming along and they're great, we may continue to hold and just have cash flow distributions to our investors, or we might decide we've kind of maxed the value of this, we've screwed squeezed the juice out of this orange as much as possible, and then we choose to sell at that time. So increase rents, increase occupancy. There's also quite a few garage units. Right now, nothing is being charged for these garage units. We conservatively projected what if we charge$25 a month for people that wanted to use the garage? We're talking about 80 garages here, so there's quite a few.$50 a month would be a little bit more reasonable, but we started small with our projections. So that's another$4,000 a month. If we do have 80 garages at 50 units or$50 per month, another revenue opportunity. It might not be the tenants that are renting out the garages. Maybe there's an opportunity where there's nearby residents, um, people living in other apartment buildings nearby or um housing nearby that needs storage space. We could we could do that. So we saw additional revenue opportunity there. Obviously, we're gonna put money in, update the units as needed. The main thing, too, that that we really want to focus on is showing tenants that we care. This is important to us. And so when we were going through the units, a lot of times when we preview property, the tenants don't know that the seller's looking to sell. So, you know, we've gone in under the guise of like an insurance inspection or maybe maintenance, right? Maintenance inspection, maintenance review, things like that for us to get eyes on the property without alerting tenants that hey, the seller's looking to sell here, and then also alerting the management, current management that somebody's looking to sell. Because if we switch management, their business is going away in terms of what we're doing. So we did work through that with the seller, with the property manager in a way that that worked. But we heard tenants say, hey, you know, we've got these fixes that we need to see happen, or we've reached out in the past and things hadn't been responded to. And so it's important for us to be responsive, provide good, clean, safe housing as much as we possibly can. And so we want to be able to turn the culture of the apartment building as well. And so, in addition to the dollars and cents and returns and all that, we want to make sure that we're doing a good job for our tenants. And so that's important to us. Like I mentioned, five-year hold, maybe a seven-year hold purchase price, 6.6 million is what we closed on it for. We raised enough to close, and now we're continuing through the raise. Uh, but we're got about$1.7 million total that we're raising here in terms of both the down payment, reserves, renovation budgets, things like that. And then we do have all of our projections over the next five to seven years laid out of what that looks like. Obviously, we can't talk about that uh on a podcast opportunity. But then in addition, one of the other cool things that we do is we do a cost segregation study. And so we're providing great tax benefits for our investors. For those people that don't know what a cost segregation study is, the best way I explain it is it's an engineering study where they look at all the stuff in the building. So typically, you know, you might be able to depreciate a building over, you know, 27 and a half years. They look at all the stuff, the carpets, the countertops, the cabinets, the window blinds, kind of all that stuff in there. And they say, hey, all that stuff isn't gonna last 27 and a half years. So we can accelerate depreciation on some of that stuff, which allows you to get some better tax benefits early on, create some more favorable cash flow that you can then reinvest back into the property, or for our investors, you know, it helps on their taxes at the time. And so we do a cost segregation study with all of our investment properties, which our investors love. So great tax benefits there as well. Well. So that's something we're just in the process of issuing those K1s to our investors for 2025 in terms of the benefits that they got for those properties. So typically what we do is we look at, you know, there's probably a timeline of stabilization. And then once we feel the property is a little more stable, we're positive cash flow. And we do look to issue quarterly cash flow distributions to our investors. So once a quarter, they'll get a distribution with any profit that we have distributed based on how much they invested into the deal. And then obviously the big windfall is upon sale. And that's why we want to make sure that we increase the value of the property. So when we sell, we've got some positive stuff going there. And so that's the nuts and bolts of our property. The work is just beginning now. So it's getting everything turned over to the new property manager, getting all the new tenants into the system, getting them to pay rents to us versus, you know, they might have had an auto pay set up, going in and assessing. We did find a plumbing leak the first weekend that we didn't know about, took care of that. But now it's kind of go through and figuring okay, which units can we rent out, which units do we need to renovate right away. And it's just starting to put new butts in seats and uh try to fill that occupancy as quick as possible and go from there. So I hope you guys are excited to hear about our new deal. 128 units, Moorhead, Minnesota, 6.6 million purchase price, 1.7 million raise. We are in the middle of that. If you're listening to this right now, uh it's for accredited investors only. So if you're an accredited investor, you can reach out to go look at our website. Um it's uh freedom throughrealestate.com, freedom throughrealestate.com. There's an invest button there. Once you get there, and then you can click to schedule an appointment with me or a call with me, we can go through things in more detail. But uh at this point, the reason we're talking about it, it's for accredited investors now. Um, we do had we did have an opportunity for non-accredited investors. Most of our deals we do for non-accredited investors, and so if you do want to learn more about these opportunities for the next one or the next one after that, same thing. Go to realfreedom.com or freedom through realestate.com, click on invest, schedule a call with me, and I'm happy to share these types of opportunities with you. Excited to share new building, new opportunity, new challenges, and uh, we're gonna roll up our sleeves and make this a great one. So, with that being said, we hope you guys enjoyed everything. Feel free to always reach out to me if you have questions and check out our website, check out more about our deals and what we're doing in the future, and uh excited to share more acquisitions and opportunities with you guys in the future. Thanks, take care.