May lose my 100+ unit apartment building

I have made extensive mistakes over the last few years and I hope that by admitting that and sharing some of them that I may help one of you avoid the same or others. I am also looking for input and suggestions though we may be too late, perhaps my biggest mistake is that I worked so hard on our problems that I became an “island” and lost touch with others who might have helped me along the way. At very least I hope this will spark a valuable discussion based on real life and real mistakes.

The short story is that a partner and I bought a 100+ unit apartment building in 2007 at the height of the market and paid too much. Though we questioned their numbers and thus value, we moved forward anyways.

We hired management from 1200 miles away and looked forward to cashing monthly checks. We rarely visited and didn’t look closely enough when we did. Real Estate is not a passive investment. I do have others. I should known better.

We suffered hurricane damage a couple of years ago and what should have been a huge opportunity to make improvements was wasted. We were still trusting others to do what was best for our business.

A year or so ago we finally wised up and parted ways with our management but the damage was extensive.

I have spent the better part of the year there and we have made significant strides.
We have increased our occupancy from about 50% to 80%. Our tenants are being taken care of after years of neglect. We have finally found an onsite manager who may be better and the market itself is quickly improving. I recently read that rents are up in the market 100-200 a door and the market is the best it has been in 40 years.

Unfortunately after “bleeding” on and off for years we are out of funds. We originally purchased the property for 3.4 and have put in another 500k. We also have about 150k (=6500/month in assorted payments) in other unsecured debt for the property that makes it nearly impossible to cash flow.

My partner is “done” and ready to walk away. The broker who sold it to us is anxious to sell it for the debt. The loan is assumable (2.54M) and he is certain he can find someone to assume it and bring enough to the table to cover our closing costs. That would not cover the unsecured debt (150K). So we are out everything and still have outstanding debt all personally secured.

If we could hang on until collections and occupancy hit 90%, restructure the unsecured debt and get stabilized the property would be worth at least close to what we paid for it and we could get out with something or possibly even hold for even greater value? Again, the market is improving. Also, I am willing to take my losses but there are a few investors who trusted us to take care of their money and I am horrified at losing that.

I hate to give up. It really just wasn’t ever an option for me. Maybe that’s another lesson? Sometimes you must cut your losses?

Hope I have given enough info?

Any ideas, suggestions or is it time to just walk? Your thoughts?



I agree that one needs to recognize when to cut your losses. That said, you also have to take a harsh look at the facts and not let the negative past influence the decision too much.

Could you share the numbers a bit more so people can see what we are looking at? Assume you were selling and you were reporting the numbers so a buyer could take a look. Just what does the opportunity look like at this time?


The operating numbers and debt service would be essential to offering any opinion on a possible turnaround plan. Also, the city is important. I have contacts in just about every state, may be able to hook you up with another investor.

I share your “no quit” temperament, but can’t say if it’s time to cut bait without the details.

Best regards,


Appreciate you both!

104 units in Houston, TX.

The current debt is $2,545,000. The mortgage we have is assumable. It is a 30 year adjustable and at its lowest rate right now which is 6.2 (know there is cheaper money out there now). PITI is about $27,207 per month.

September income is $43,000. The gross possible is currently at $63,000. Rent roll this month showed possible 47k.

Operating expenses including debt service are at about $50,000. $33,000 without debt.

Those are the quick and dirty. Let me know if something else would be helpful.



Why not just hold onto it and keep increasing the occupancy, thus increasing the value?

You also mentioned about the rents constantly going up $100-200 a door? Although as soon as it breaks even or has some profit built into it then I would consider putting it up for sale.

Just a suggestion! Remember this is all a learning game and at least you had the guts to get into it in the first place! Your never taught these lessons in high school or college.

Thank you, smcgallis ! Ideally, I would just hang on and as soon as we have several months in a row of better income indeed we could get out in much better shape. Everything points to increasing value.

Problem is we have been covering the shortfall for entirely too long and just can’t keep making up the difference. Basically we are broke:) and either need to figure out how to restructure, increase occupancy quickly and significantly (that costs money too) or find some other solution. Thought we could make this all happen faster and of course less expensively than we did. Certain no one else has ever experienced that:).

I truly appreciate your comments and indeed we did get out and make it happen! The lessons learned are priceless and we are better for them. Regardless of the outcome, I still love and believe in this real estate business. It is not for the timid or fainthearted!

Christy, how much capital do you have in the property? Did you put 30% down? I guess the other thing to figure out is how much will your loss be if you sell it. If you will lose a lot of money by selling it, it may be wiser to hang on to it and get it stabilized. If you were to get your gross income up at $50,000, then you would be breaking even on cash flow, correct?


  1. Assume you are going to sell.

Get the numbers organized so a buyer can evaluate the opportunity. Make the numbers real so you get a solid view of what you have to sell.

  1. Assume you are going to hold and there is cash available.

What would you need in cash to get the property to where it should be? Be realistic in terms of time horizon and what can really be accomplished.

In some ways the result of number 1 is the current picture that a new buyer would take on. The answer to number 2 is the future state where the property is fully up to speed. You will know how much money it will take to get from 1 to 2. You can then better evaluate which option actual makes sense. Any realistic buyer will be doing a similar analysis to see if they have the desire and the capital to finish the turn around.

Talk to the lender. Restructure the loan so that you are cash flowing. Lenders are very easy to negotiate with these days.


Any update?

The 6.2% interest rate is the toughest issue you are facing, especially given that it’s a floating rate. That is one tough index/spread that you are up against! Is this a bank portfolio loan or is it tied to Freddie or Fannie? You need to read the Prepayment Premium section of your Promisory Note! What is the prepayment penalty? When is the yield maintenance period end date?

I’m assuming that you are making monthly deposits into a replacement reserve fund. Are you making good use of your right to periodic replacement reserve disbursements? That is YOUR money and given the tight cash flow, should be re-cycled efficiently to the benefit of the physical asset.

Good Luck,