Trial by Fire: How We Got Started
By Ed Rogan, Owner, Co-Founder
People often use the term “trial by fire” to explain how they learned something. In our case, the term is all too appropriate.
Looking back on it, the story of how Percy and I got started almost seems unbelievable. We were just two guys, both living outside of Philadelphia, who bonded over our shared love of real estate. After a few meetings, we started scoping out deals together. We could never have imagined how our path ignited from there.
Trial by Fire (Literally)
Percy and I were looking at what should have otherwise been a pretty benign multifamily apartment deal. The 120-unit building was located in Alvin, Texas, a town just south of Houston. We knew the place needed some work. It was 1979 vintage, after all.
And work we got.
We were still under agreement when the building burned down. Twelve of the units were destroyed in the fire. Some buyers would have walked away, but we decided to persevere and move forward with the deal.
The deal structure changed a bit. At that point, we got a credit to the purchase price in the amount of our estimated repair cost to bring all of the units back online. It was trial by fire, alright.
There were all sorts of things to learn about a property that has endured a fire. We had to start off by rebuilding the 12 units that were out of commission. We actually saw this as an opportunity, though, The previous owner was a mom and pop investor who managed the property by themselves. There was strong occupancy when we first looked at the deal but the owner had a lot of unpaid rents on the property, which was dragging down the pro forma.
We used the fire as a good excuse to reposition the property. After renovating the 12 units, we re-marketed the property and placed a greater emphasis on finding really great, high-quality tenants. We essentially turned the entire building around and in doing so, helped build a new reputation for the property.
Despite – or perhaps because of – the fire, the deal has performed really well. Our friends, family, and even our investment partners were skeptical. We endured a lot of negative feedback on this project. People told us to walk away. It was to far outside of Houston. There were too many problems with the deal. Maybe the fire was supposed to be an omen to walk away once and for all, but we marched on.
We learned to trust our intuition. We had done our homework and knew that the project was in a good market that is going to continue seeing growth because there’s a growing concentration of high-income earning, upper middle-class working professionals in the area. We also recognized that the building is in an area where there’s no new supply coming online, and nothing else had been built in the past five years. Plus, all our comps were 90%+ occupied. We saw abundant evidence for demand.
And we were right.
We got over the hurdle of renovating those initial 12 units, and the property has been on an upward trajectory ever since. We’re up over 95% occupancy and now that the property has been stabilized, we’re turning our attention to other cosmetic improvements, such as adding a new exterior coat of paint and repaving the parking lot.
In fact, one could argue that the property has performed better than it would have had it not caught on fire. The fire opened the door for wholesale improvements, which allowed us to reposition faster than we initially anticipated. It’s the classic story of taking a basket of lemons and turning it into lemonade.
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Our path to investing was certainly unique, and one where “trial by fire” seems to do it appropriate justice. We never could have imagined our journey getting started this way, but we’re glad it did. The lessons we’ve learned from the Alvin, Texas deal have ignited our business and now it’s up to use to keep that spark going from one deal to the next.
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