Real Estate Deal Analysis & Advice

How I Landed a Solid 4-Plex in Denver, One of the Hottest Markets in the Country

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four-plex-denver

In this article, I want to walk you through my most recent purchase here in Denver, CO. I’ll show you how it fits with my overall plan, and I’ll explain how I found this (off-market) deal, how I analyzed it, and how I financed it. Then I’ll walk you through the most important qualitative determinations I had to make.

My Overall Real Estate Plan

My major real estate goal is to purchase one property at increasing scale every 12-18 months within the city limits of Denver, CO. I believe that after 7-10 years of executing this strategy effectively, I will be able to accumulate a portfolio valued somewhere between $3-5MM with $1-2MM in equity. Done correctly, this should give me plenty of surplus cash flow to live an enjoyable life and set the stage for the accumulation of truly significant, abundant wealth down the line if I should choose to pursue that. I desire to be able to achieve this result on the side, as a “hobby business”—not truly dedicating full-time effort. But I also constantly self-educate and network, and I run my operation professionally on that part-time effort.

I do not limit myself to wealth creation solely in Denver real estate, and while pursuing this strategy, I also invest in outside investments like stocks (index funds) and crowdfunding—and I may try my hand at a turnkey property or two in the near future while preparing for my next Denver purchase in late 2018/early 2019.

I finance my properties the old-school way—I save aggressively. My goal for the next 12-18 months is to try to put myself in position to purchase a $300,000-$500,000 property with 25% down, to purchase a property double that size with a partner, or to house hack.

I am leaning towards another house hack next year. If I do house hack, I will be able to put down significantly less than 25% and thus may get more aggressive with investments out-of-state or in other asset classes, as I can deploy my liquidity in alternative investments.

The point of telling you this is to show you how this most recent purchase fits in with my overall plan and was not some random purchase of a great deal. This is part of an intentional process that I am following.

Setting Up to Buy

Prior to purchasing this deal, I accumulated over $100,000 in investable after-tax liquidity (read: cash savings, accumulated after-tax—BUT I kept that cash mostly invested in index funds, which I then liquidated prior to the purchase). I had a several hundred thousand dollar net worth and a savings rate of over 70%. I also went in on this deal with a 50/50 partner. Between the two of us, we were fairly conservatively capitalized to purchase a property in the $400,000-$600,000 range with a 25% down payment. We could have purchased a much larger property. This accumulation of cash took about three years of hard work and was an amalgamation of my other real estate investments, income from my job, and returns from the stock market. I embrace a fairly hardcore approach to frugality through house hacking and biking to work, and I earn a good income.

The point is: I believe I was investing from a position of financial strength. This property will not make or break my financial position, and I do not depend on it performing to continue building wealth or to support my lifestyle.

Towards the end of April of 2017, I began the search for this property in earnest. I have my real estate license, so I scoured the MLS to look at all recent transactions. I also began to follow the progress of relevant property listings that were of the type that I was interested in acquiring.

Furthermore, I began meeting with dozens of individuals over a 3-month period. These folks were investors and real estate professionals focused on the Denver market. Each time, I would try to add value somehow by helping them with their strategy, connecting them with someone in my network, or simply talking through their situation.

Related: Case Study: How I Made $40,000 on My Recent BRRRR Real Estate Investment

And each time, I would mention that I was in the market for cash-flowing real estate deals within the city limits of Denver.

On June 14th, after three months of active searching, I got an email from an agent that I had met with as part of this process. I had a previous relationship with this agent, as he worked at the same brokerage I had for a year or so.

The funny thing about this email is that I had just gotten back from a 4-day vacation with my girlfriend to Cancun, Mexico. I took the vacation as a reward for the grueling (yet totally rewarding) process of writing a book (Set for Life). I must have landed at around 4:30 p.m., gotten home at around 5:30 p.m., and then seen the email.

The Deal

The email read as follows:

Another opportunity just came across my radar. 4-Plex in S Barnum, maybe a bit farther south than you imagined but a prime investment! $339K

Gross rent per month is $3,125 ($800 x 3 + $725). The $725 per month tenant has been there 14 years I believe and always pays so he hasn’t been as aggressive with her rent increases.


Monthly Expenses:

Water: $200 avg. (can be billed back to tenants on future leases)
Taxes and insurance: $325
Trash: $80

Monthly NOI = $2,520 – $200 for miscellaneous expenses = $2,320 per month x 12 = Annual NOI =$27,840

Cap Rate of 8.2% and annual cash on cash ROI of 11.9% 

These are from the actual financials from last year and actual rent rolls. You will get all the official docs, but I don’t have them yet. The owner just took these off his profit and loss.

Roof is 4-5 years old. Windows were replaced in last couple years. All units other than the 14-year-tenant unit have been turned (updated) in the last 3 years—one was just newly updated this month. The appliances have all been replaced over the years.

Let me know your thoughts/questions!

Stu

Goes on the market on Wednesday (tomorrow)!  No showings without an accepted contract.

As soon as I saw this email, I knew that this was a prime prospect. I knew that based on my months of looking and based on its location that I was unlikely to find a better deal in Denver anytime soon.

As tired as I was from traveling (yes, I know—poor me tired from my vacation to Mexico, right?), I went immediately to drive past the property. It’s about 7 minutes from where I live.

This was not my top location in Denver, but the numbers on this property just made more sense than anything I’d looked at previously. The structure from the outside seemed reasonably well maintained, with no immediate red flags. I conferred with my partner, and we decided to move forward with a full-price offer. We wanted to scoop the deal up before it hit the market, and in my estimation, would likely receive multiple offers.

I called up the agent that sent me that email, thanked him for sending me the deal (and several other solid off-market properties as well prior to and following this one!), and asked if he would represent me on the transaction (even though I have my license) as a thank you for bringing me the deal. We submitted an offer by 9:00 p.m. that night.

Note that to an outsider, it looks like I made a nearly instantaneous decision to purchase this property. That is absolutely not the case. I’d looked at literally hundreds of deals over the preceding three years and intensively analyzed dozens of deals over the preceding three months! I had equipped myself to know a good deal when I saw one and to move forward decisively.

Initial Analysis

I ran the numbers through the BiggerPockets Rental Property Calculator in just a few minutes and came up with a model similar to this one. Because the deal has been closed, we have the privilege of using actual numbers in a couple of places, and I round in a few other instances.

Here’s the analysis:

Now, I know that many of you will look at this and say, “A 5.4% CoC (cash-on-cash) ROI (return on investment)!?! That’s crazy!”

And that’s probably coming from two perspectives:

1. The Denver Perspective

The Denver locals are thinking, “How the hell do you produce a 5.4% CoC ROI within the city limits of Denver—AFTER including “expenses” like property management, vacancy, and CapEx? That’s crazy high!”

2. The “Other” Perspective

And of course, investors from cash flow markets are thinking, “What a joke. I produce 2-3x that CoC ROI in my sleep in my local market! That return is crazy low!”

Perhaps because of my position here at BiggerPockets and the resulting absorption of lots of information, I seek a relatively high CoC return, but within my home market. I want this so that I can deploy my continually increasing knowledge to help increase returns through direct management. I chose to offer on this property for two reasons, in spite of what at first glance appears to be a low CoC ROI.

First, because of the property’s proximity to my personal residence (7 minutes), I felt that I could conveniently self-manage and thereby inflate the returns of this investment. As I self-manage, my effort eliminates that $320 expense, and property management thus far has not taken more than an hour per month, after the initial stabilization. I don’t make $320 per hour through other means—yet. Without property management expense, my CoC ROI inflates to 9.1%.

Second, I believed that I could raise rents to $900+ and also charge a utility fee of $75 per unit over the next few years, based on the location and market rates.

The Inspection and Negotiation

After getting the property under contract, we ran an inspection. While the condition of the property was pretty good overall, with some minor structural things that we need to keep an eye on going forward, it became clear almost immediately that the property had some management issues.

  • First, I learned that a murder had taken place on the property in one of the units. Lesson: Always Google the address of the property as part of the analysis. Whoops! While the details are still murky, it was rumored that the violence was gang-related. That unit had since been remodeled and re-rented prior to my offer.
  • Second, I learned some unknown person had been living in the crawlspace.
  • Third, I learned that one of the units was late on rent and was going through eviction.

I was certainly uneasy about all of this, but I rationalized that I could make it through this and that the reason I was getting this property off-market, relatively cheap, was because of these management issues.

I reasoned that I could ensure in my screening that all future renters had verifiable income, excellent credit, and no criminal or eviction history—this would lessen the probability of renting to a gang member who might become involved in violence significantly. I further reasoned that we could lock the crawlspace to avoid having drifters living down there.

My big concern wasn’t the first two things. It was actually the ongoing eviction.

I did not want to close on a property with tenants who were about to be evicted. Based on my visual inspection of the unit, it was clear that it would need a moderate rehab with at least new appliances, paint, carpet, windows, etc. to get rent-ready. I estimated about $5,000 in repairs.

That rehab didn’t scare me. What I was more concerned about were the piles and piles of stuff both inside the unit and out. I was not interested in the kind of work involved in removing what I imagined to be at least one full dumpster worth of tenants’ personal property, should they leave the (what to me looked like) junk after vacating. So, I got on the phone directly with the seller, and we agreed that we would not close until the eviction was completed and the tenants’ personal property removed.

We also agreed to a couple of minor concessions involving a water heater and some plumbing.

After Closing

After closing, the tenants in the end unit had vacated, and my hypothesis was confirmed—the unit needed a decent amount of work to get rent-ready. We immediately got to work, hired a contractor to completely repaint cabinets, re-carpet, install a bathroom vanity, fix various plumbing issues, replace two windows, and complete a couple of other minor tasks. I put in a new fridge, cleaned the place up, and then advertised it for rent. (Yes, I just read the BARRRR article—shoot! I should have marketed the property for rent first!)

After about $6,500 in rehab costs (a bit higher than my estimate), I was able to market this fourth unit for rent, and I have successfully placed a happy tenant who meets my criteria in there at a rate of $925 per month.



Related: Case Study: My BRRRR Deal That Went Sideways (& What I Learned From It)

I’ve had a couple of issues with one of the inherited tenants, and I am looking forward to moving all of the tenants that occupy the property to my (in my opinion, significantly better) lease over the next 8-10 months. I expect to give each tenant plenty of notice and gradually, fairly, increase the rents over a period of two years to the $925/month rate of the most recently signed tenant. I also plan with future new tenants to charge a $75 utility fee in addition to the $925 rent, but having not done that, I am not factoring that into my cash flow expectations for the immediate future.

At that time, should I successfully execute, I will see a significantly increased cash-on-cash ROI, with tenants that are all on my lease, living happily. I plan to do my part and make sure that their needs are taken care of and they have a nice place to live peaceably.

Conclusion

This property is a solid single for me—and a nice addition to my portfolio as part of my plan. The big takeaways are that I am producing significant cash flow in excess of my expenses and that I believe that I can add value with proper management, convenient to where I live.

I prepared myself thoroughly to spot a good deal, knew exactly what I was looking for, and networked extensively to increase my odds of getting a solid deal. I had self-educated enough and experienced enough to confidently take on what was sure to be a management challenge. I also bought conservatively; this purchase by no means stretched me to my financial limits.

It’s still too early to tell if this property will perform as expected, but I am pleased with the purchase thus far, and I am grateful to my wonderful agent for bringing me not just this deal, but several off-market deals that approached my description of the ideal property.

We’re republishing this article to help out our newer readers.

What do YOU think of this deal? How does it compare to some of the multifamily investments you’ve analyzed or purchased in your market lately?

Leave your comments below!

Scott Trench is a perpetual student of personal finance, real estate investing, sales, business, and personal development. He is CEO of BiggerPockets.com, a real estate investor, and author of the best-selling book Set for Life. He hopes to now share the knowledge he has acquired with others so that they will have the tools they need to repeat his results in just 3-5 years, giving them the option to go anywhere they want in the world, work any job, start any business, or finish out the journey to financial independence and retire young. Scott lives in Denver, Colorado and enjoys skiing, rugby, craft beers, and terrible punny jokes. Find out more about Scott’s story at JoeFairless.com, MadFientist, and ChooseFI.

    Justin Browne Investor from Delray Beach, Florida
    Replied over 1 year ago
    I loved the post Scott and I think you have yourself a good property. All too often we forget about the creativity in real estate. In a tight market sometimes you have to be willing to analyze a deal for what it could be and not what it is currently. That’s a scary thought for some investors but it can certainly be profitable! Congrats!
    Scott Trench President of BiggerPockets from Denver, CO
    Replied over 1 year ago
    Thank you Justin! I’m also not scared even if I operate the property at its current level of operational cash flow. It should not bleed me money.
    Zac Boelkow from Port Richey, Florida
    Replied 9 months ago
    Scott, I was in a similar situation where I needed to buy another property for tax purposes. I found a duplex that was close to the bone. My deal was a little too close to finance it, have a management company, etc. So I ran the numbers as a cash purchase along with self management and determined, that in this market when competition is tight and prices are high, that with a cash purchase it was a solid buy. I paid $142500 7 months ago and recently had to appraise it for the value for another loan and it appraised at $201000 and its producing a healthy amount of cash. I knew it was a buy, like you said, from running numbers over and over, and knowing my market. We bought it on our way home from seeing it over the phone with the sellers agent. Cool stuff!! Good Luck!!
    Zac Boelkow from Port Richey, Florida
    Replied 9 months ago
    Scott, I was in a similar situation where I needed to buy another property for tax purposes. I found a duplex that was close to the bone. My deal was a little too close to finance it, have a management company, etc. So I ran the numbers as a cash purchase along with self management and determined, that in this market when competition is tight and prices are high, that with a cash purchase it was a solid buy. I paid $142500 7 months ago and recently had to appraise it for the value for another loan and it appraised at $201000 and its producing a healthy amount of cash. I knew it was a buy, like you said, from running numbers over and over, and knowing my market. We bought it on our way home from seeing it over the phone with the sellers agent. Cool stuff!! Good Luck!! Reply Report comment
    Jerry W. Investor from Thermopolis, Wyoming
    Replied over 1 year ago
    Very good article Scott.
    Scott Trench President of BiggerPockets from Denver, CO
    Replied over 1 year ago
    Thanks Jerry – I always like to see your feedback on these.
    Daniel Francois
    Replied over 1 year ago
    Excellent article, Scott. Thank you for the “Walkthrough” on the before, during, and after on the purchase of your incredible 4~Plex. Congratulations on the investment! Man, you are on your way to becoming a multi~millionaire in no time! (O.K., maybe a little time, but awesome for you!) Cheers!
    Scott Trench President of BiggerPockets from Denver, CO
    Replied over 1 year ago
    Thanks Daniel!
    Sri Ram Rental Property Investor from West Palm Beach, FL
    Replied over 1 year ago
    Good Article and good analysis for newbies to get started on real estate investing. Worked out a good plan for your age. Congrats!
    Scott Trench President of BiggerPockets from Denver, CO
    Replied over 1 year ago
    Thank you Sri!
    Hiren Madhavani Investor from Fremont, California
    Replied over 1 year ago
    Congratulations on a great investment Scott. Let takeaways for me were invest in a great location and you will keep seeing good upticks in rent over time and keep networking with brokers/investors who can help you achieve your goals faster. Thanks for the great article. did you have any trouble getting loan on It?
    Scott Trench President of BiggerPockets from Denver, CO
    Replied over 1 year ago
    Thanks Hiren! I did not have any trouble getting a loan on the property. I keep year-round contact with my lender and make sure that I understand any major life changes and how they might impact my ability to qualify for a loan.
    Bobby Eastman from Dallas, Texas
    Replied over 1 year ago
    Thanks man that was a good read and very informative.
    Scott Trench President of BiggerPockets from Denver, CO
    Replied over 1 year ago
    Bobby – I’m so glad you liked it!
    Shawn Ginder Investor from Lititz, PA
    Replied over 1 year ago
    I can relate to seeing and analysing a lot of property, knowing when a deal makes sense, seeing potential for bringing up value, and not being afraid to offer a price that still makes sense for you, even if it goes against the “investor” conventional wisdom on buying a great deal based on purchase price alone. Can also related to inherited tenant issues, and higher renovation costs than expected, but as well to buying in a great location that is easy to rent to quality tenants. All the best, bottom line I relate in a lot of ways, where our story differs is in the approach getting in from a strong financial position, this is where I was in pretty tight situation and needed to make this work, we are now 18 months into this game, I see light at the end, but we are still about 2-3 months from seeing things really stabilise, however we’ve taken a bit more risk up front with a higher expected return soon to follow. Started with three properties in our first month of investing, at month 12 added two more, the first three have stabilised nicely, waiting for our final property to settle after a rehab of one unit in a duplex, simply need a quality renter now. Great job on the article.
    Scott Trench President of BiggerPockets from Denver, CO
    Replied over 1 year ago
    Thank you Shawn – and I hope that your return materializes with the hard work you’ve been putting in!
    Shawn Ginder Investor from Lititz, PA
    Replied over 1 year ago
    The difference in our market in PA is wide, 5 properties for less than the one purchased in Colorado. 4 units vs. 9 units, CAP rate looking at 14.8%, but we financed 100% so a higher risk factor played out.
    James Free Rental Property Investor from Fort Collins, CO
    Replied over 1 year ago
    I’m surprised to see Scott using 3% for vacancy, 3% for repairs, and 5% for capex in the calculator. Will those numbers hold up over time?
    Shane Sigsbee from Las Vegas, Nevada
    Replied over 1 year ago
    I had this same question, these seem much lower than what I’ve seen advised to use on here.
    Hunter Chen Rental Property Investor from Boulder, CO
    Replied over 1 year ago
    Being in the same market as Scott, I can attest to the 3% vacancy as long as the unit is at market price. 3% for repairs feels a little low, depending on your location and property type. If the units are Class A or B one-bedrooms, then your tenants could probably keep the wear and tear to 3%. If the units are Class B or C two-bedrooms, then I would consider increasing the 3% maintenance. Lastly, I agree with Scott that CapEx should vary across the country. But I don’t think Denver’s rates are lower than other parts of the country. Here’s an BP article that does a great job itemizing CapEx: https://www.biggerpockets.com/renewsblog/2015/10/13/real-estate-capex-estimate-capital-expenditures/
    Scott Trench President of BiggerPockets from Denver, CO
    Replied over 1 year ago
    Hi James and Shane, Thanks for this feedback! First, I was hoping someone would notice the vacancy numbers. This is about the average that I’ve had, along with many other landlords, but it certainly is possible that I experience more than this as a practical matter. However, I intend to operate as efficiently as possible, and believe that I can hit this 3% number. I would not be using this in another market with more supply and less demand. Second, I personally think that the “rules of thumb” for repairs and CapEx are baloney. To assume that repairs and CapEx are best estimated in all markets as a percentage of gross rents seems ridiculous to me. Tell me this — if I plunked this same structure down into the rural midwest, it all of the sudden rents for about 50% of what I’m getting. But, you’d tell me that I would be foolish and dangerous to assume that my repairs and CapEx on the SAME STRUCTURE would be lower than they are here in Denver, right? I hope that my estimates are in line with what other investors might assume, for fixed dollar spend (NOT in terms of a percentage of rent) on a 2,000 sqft quadplex structure in most areas of the country. But, I am definitely still learning, and do not have decades of experience to accurately use the law of large numbers to estimate my expenses with the precision of landlords with hundreds of units. I’d love feedback from someone with that experience to tell me that I am wrong! I will then adjust my expectations accordingly.
    Johnny Wolff Rental Property Investor from Kansas City, KS
    Replied over 1 year ago
    I’ve been thinking the same thing! Shouldn’t repairs and CapEx be a fixed amount on a monthly basis per unit? I have a couple newer houses in Austin that rent between $2500-$2800/mo and and there is no way I’m gonna pay an average 10% of rent for capex / repairs combined for the foreseeable future. Feels like using a flat % is an oversimplification that will lead to missed opportunities.
    Jane S. Flipper/Rehabber from Colorado Springs, CO
    Replied 6 months ago
    Johnny I agree with you on repairs. I also have high-dollar rentals and fixed everything before leasing, so repairs are minimal and roof is insured … I do a “what if” type of calc. but so far over 4 years the only repairs were 2 hot water heaters & a disposal. Tenants agree to pay for all other repairs up to $300 which covers HVAC maint.
    Craig Curelop Rental Property Investor from Denver, CO
    Replied over 1 year ago
    Great article, Scott! Looking forward to hearing about how the deal evolves.
    Scott Trench President of BiggerPockets from Denver, CO
    Replied over 1 year ago
    Thanks Craig!
    Ty Little from Spring Lake, North Carolina
    Replied over 1 year ago
    Great article Scott. I used the saving methods to purchase my first investment property a month or so ago. Love how you’re staying committed to your plan. Keep the experiences coming. Thanks
    Scott Trench President of BiggerPockets from Denver, CO
    Replied over 1 year ago
    Thanks Ty!
    Troy Chowanec Real Estate Agent from Hales Corners, Wisconsin
    Replied over 1 year ago
    Great article Scott! I love the set up and walk-through on the purchase. I noticed there was nothing listed for lawn care or snow removal in the numbers…..will you be handling that as part of the management? The roi is of secondary importance to wealth creation and the eventual cash flow you will have once there is no longer a loan to service. So many loose sight of that……focusing more on the here and now rather than the big picture. Your sacrifices will be well rewarded!
    Scott Trench President of BiggerPockets from Denver, CO
    Replied over 1 year ago
    I handle this myself for now, but I will be making this a requirement of the next tenant to occupy.
    Troy Chowanec Real Estate Agent from Hales Corners, Wisconsin
    Replied over 1 year ago
    Great article Scott! I love the set up and walk-through on the purchase. I noticed there was nothing listed for lawn care or snow removal in the numbers…..will you be handling that as part of the management? The roi is of secondary importance to wealth creation and the eventual cash flow you will have once there is no longer a loan to service. So many loose sight of that……focusing more on the here and now rather than the big picture. Your sacrifices will be well rewarded! Reply Report comment
    Ruthy Taylor Residential Real Estate Broker from Tacoma, Washington
    Replied over 1 year ago
    This is so helpful to see…I’m in Tacoma WA and the market here is bananas…the cash on cash ROI on the deals I’m analyzing are pretty low…but I know I can find a value add opportunity! I’m a realtor as well and have been going about the exact same approach including scouring expireds and cancelled listings…I’ve created lots of relationships and I’m praying something pans out soon! Thank you for sharing your numbers!
    Scott Trench President of BiggerPockets from Denver, CO
    Replied over 1 year ago
    Glad it was helpful Ruthy!
    Quincy Lockett from South Holland, Illinois
    Replied over 1 year ago
    I don’t know that market Scott but you’re proposing raising rents by $200 per unit within the next 2 years? Can the market for your units sustain that (I know the recently rehabbed unit is paying $925) but an additional $75 per unit? And will the new tenant sustain paying $925 consistently over the long term. It seems a bit overly optimistic to me. I’d suspect there are $1000/monthly units in better areas in more modern properties but again I don’t know your market. If the property can sustain those increases Great Buy!
    Scott Trench President of BiggerPockets from Denver, CO
    Replied over 1 year ago
    Quincy – I bought the property because I thought that it was under-market rent currently. This seems to be an accurate hypothesis, as I have already placed a tenant in the vacant unit at $925 per month. So, I believe that the current market rents are $925 per month. If I’m able to get the $75 utility fee on top of that next year, I will not be that surprised. That will be less than a 10% increase in rent. If not, no biggie — I did not underwrite the deal with that expectation in mind.
    Laura Johnson-Morris Investor from Westminster, Colorado
    Replied over 1 year ago
    Great purchase! I’m an investor in Denver, too, and would also jump at a deal like that. We just finished an $11,000 remodel of a unit in Westminster but were able to raise rent by $400/month with the new tenants who just moved in. Even though we might not have the same cap rates as other places in the county, it’s nice to have rentals close by and be able to self manage. Looking forward to hearing about more of your deals! Let me know if you’re ever looking for a partner!
    Scott Trench President of BiggerPockets from Denver, CO
    Replied over 1 year ago
    Fantastic! that’s a great ROI on your rehab! I think that in 30 years, we have a good shot of looking back and thinking we were fairly smart for buying here in the Denver metro 🙂
    David Coleman from Houston, TX
    Replied over 1 year ago
    Thanks Scott this article is very helpful and give the investor the perfect idea how to analyze their multi units or duplex or 4 plex thanks .David Coleman
    Scott Trench President of BiggerPockets from Denver, CO
    Replied over 1 year ago
    Thanks David!
    Sam Patel from San Diego, California
    Replied over 1 year ago
    Thanks for sharing your experience Scott! It really shows another way to make a deal work.
    Scott Trench President of BiggerPockets from Denver, CO
    Replied over 1 year ago
    Thanks Sam!
    David Moore from Lakewood, California
    Replied over 1 year ago
    Congrats!! I like how you mentioned speed in executing this deal and that how you were able to act fast was that you were at a place where you can recognize a good deal right when you see one. I’m endeavoring to get to that place, where I can analyze a deal and quickly act on it. Stoked for you!
    David Moore from Lakewood, California
    Replied over 1 year ago
    Congrats!! I like how you mentioned speed in executing this deal and that how you were able to act fast was that you were at a place where you can recognize a good deal right when you see one. I’m endeavoring to get to that place, where I can analyze a deal and quickly act on it. Stoked for you!
    Freddy Moldt from Fort Lauderdale, Florida
    Replied over 1 year ago
    I think something to mention is how a property like this affects your debt/income ratio for leveraging future debt with the bank. I also started as a buy and hold investor sitting on a ‘base hit’ like you mentioned. Then I realized I would hit sort of ceiling with managing debt at the banks – if I continue my income-to-debt ratio would look poorly to a bank even though I know I’m positive equity in my properties and limit further growth. Any ideas on how you’ll manage this?
    Scott Trench President of BiggerPockets from Denver, CO
    Replied over 1 year ago
    Hi Freddy – So, and I’ll have to triple check with my lender about this — I believe that because 75% of the rents will cover the entire PITI and all operating expenses (which DO NOT include CapEx or management as I self-manage). This means that the net income from the property will actually increase my ability to borrow in the future, not decrease it. Of course, there are limits to the amount and number of conventional loans an individual can take out, so this does reduce that number by at least one loan. I manage this problem by constantly keeping in contact with my lender and making sure that I know the implication of new revenue streams, new debts, and large expenses on my ability to borrow in the future.
    Hunter Chen Rental Property Investor from Boulder, CO
    Replied over 1 year ago
    I’ve actually hit this ceiling myself. All of my properties are cashflowing positive at about the same rate. But 75% of rent covering PITI means your overall debt to income is averaged with 75%. As you buy more properties, your personal income (from your primary job) will be unable to keep up with the increasing number of 75% DTI properties. And I’m only at 4 conventionally leveraged properties. I imagine that going forward I will need to pay off one of the properties to free up the debt side, or find a hard money partner (maybe my parents…).
    Andrew Oladipo
    Replied over 1 year ago
    Nice job Scott! I believe this is on track to meet your performance expectations. Your tax & Insurance expense of $325 seems really low or is that per unit? I would have expected property tax of around $7-8k per annum. Congrats once again!
    Scott Trench President of BiggerPockets from Denver, CO
    Replied over 1 year ago
    Thanks Andrew! My taxes and insurance are actuals on the whole property. We enjoy low property taxes here in the great state of Colorado.
    Account Closed Investor from San Francisco, California
    Replied over 1 year ago
    Great article Scott, thanks for writing. Would you do this deal if you weren’t able to manage it, ie. you were investing from another state? I’m in the Bay Area, and don’t have the time/bandwidth to manage properties locally. This market is too hot to be purchasing in, so I’m left wondering if it makes sense for an out of state investor to look at multi-family homes in other markets….thanks!
    Scott Trench President of BiggerPockets from Denver, CO
    Replied over 1 year ago
    I may have done this deal if I weren’t able to manage it if I were able to partner with a great operator. Remember, that while this may be a good deal for the denver investor, it is still a relatively weak cash flow compared to even some publicly traded dividend stocks. My cash flow will come through self-management, and by operating effectively to increase rent and reduce operating expenses.
    Rich Lopes Rental Property Investor from San Jose, CA
    Replied over 1 year ago
    Do you have to disclose about the Murder to your new / prospective tenants? If so, how did you handle the situation? That would scare a ton of quality tenants IMHO. Otherwise an excellent pick for the Market you are in and great analysis?
    Scott Trench President of BiggerPockets from Denver, CO
    Replied over 1 year ago
    The murder is a matter of public record, and was reported on. I disclose it additionally as a matter of principle.
    Christy Browning Real Estate Investor from Denver, Colorado
    Replied over 1 year ago
    Thanks for the excellent article – your in depth case review and numbers analysis are both very helpful. I remember hearing you talk about this deal over several of your most recent podcasts as it evolved – it’s great to see the conclusion here for your investment’s performance. Congratulations on the great deal, and your intentional plan to achieve along with the execution is inspiring!
    Scott Trench President of BiggerPockets from Denver, CO
    Replied over 1 year ago
    Thanks Christy!
    Micah DeGouveia from Blaine, Washington
    Replied over 1 year ago
    Thanks Scott! I have been analyzing deals in my local area and sometimes reading peoples experiences in high cash-flowing areas skews expectations. Your experience is both educational and also helped me realize that it is important to look at deals within the context of the local market.
    Scott Trench President of BiggerPockets from Denver, CO
    Replied over 1 year ago
    Thanks Micah!
    Howard Sklar
    Replied over 1 year ago
    Scott: Take great care in the Denver Market! I have been buying and holding R.E. in Aurora Colorado for 20 years now. Rents in Denver these past 24 months have officially gone parabolic! Pray for a soft landing as that is most certainly unsustainable and any broker that tells you otherwise is represneting himslef at your expense! Where’s the “headache premium”? There was a time when I wouldn’t look at a property here unless it had a 20%+ return. Best to look at other markets that have not come so far so fast. There’s no “meat on the bone” here for new investors.
    Jane S. Flipper/Rehabber from Colorado Springs, CO
    Replied 6 months ago
    Howard, I totally agree with your Denver opinion. Colorado Springs has been in that bracket for a while as there is no SFR inventory. I am convinced it makes more sense to pursue multifamily opportunities. Thanks for clearing the air. I spent a couple days looking @ SFR in Aurora. There are some very pretty areas but houses stuck at $300K-$350K, all fixed up. Strictly O-O territory, now.
    Scott Trench President of BiggerPockets from Denver, CO
    Replied over 1 year ago
    Howard – thanks for this note. I would love to meet you for coffee to learn more about your experience here in Denver. You have much more experience than I and I am always looking to challenge my assumptions. Please PM or email me at [email protected]
    Chad Nagel Rental Property Investor from Fond Du Lac, WI
    Replied over 1 year ago
    Love the hustle!!! How far along are you on your plan of 3-5 mil? How many deals have you done?
    Scott Trench President of BiggerPockets from Denver, CO
    Replied over 1 year ago
    Thanks Chad – I don’t like to give the specifics of my net worth or income because I am not anonymous. There are, however, many bloggers that DO remain anonymous and share those numbers here: http://directory.rockstarfinance.com/blogger-net-worth-tracker I am certainly happy with my progress towards that goal though!
    Steven Hu from Colorado Springs, Colorado
    Replied over 1 year ago
    Great deal, Scott! Thanks for sharing too. Always those small details count. One more detail you might want to share: how did you and your partner form an entity to purchase this property? I mean an LLC account from you two’s individual account or just use personal account with combined funding to submit the offer?
    Scott Trench President of BiggerPockets from Denver, CO
    Replied over 1 year ago
    PM me and I’ll tell you about this one!
    Sedriah F. from Charleston, SC
    Replied over 1 year ago
    Scott, With the inherited tenants when you get ready to renew the leases, what do you do if they don’t pass your screening standards for a tenant but they have been good tenants that pay on time? Do you not renew or allow them to stay since they are already in?
    Scott Trench President of BiggerPockets from Denver, CO
    Replied over 1 year ago
    Sedriah – I plan to pick the brain of a more experienced investor as the time comes for this.
    Taylor Lydon from Boston, Massachusetts
    Replied over 1 year ago
    Thanks for the great article Scott, its always helpful to hear real life examples. I was wondering who you were/are networking with over that 3 month period? How did you find these individuals? What was your ask of them (call, meeting, coffee, etc)? Congrats on the addition to your portfolio!
    Scott Trench President of BiggerPockets from Denver, CO
    Replied over 1 year ago
    I’ve found that agents and investors love to chat about their craft. So, I simply ask them if they want to meet up and chat about real estate. When’s the last time someone asked you out for coffee to hear your story and how your career is progressing? Would you say no? I found most of them on BiggerPockets!
    Greg Parker Contractor from Montgomery, AL
    Replied over 1 year ago
    Good move to have all of that cash to throw down. I recently purchased a solid 110K property and was able to get it for 95 because the seller loved the idea of a cash offer. Cash is always king. Quick closing too, the closing attorney gave me the binder check back at closing and said they didn’t have time to process it because we closed in a week from signing contract.
    Scott Trench President of BiggerPockets from Denver, CO
    Replied over 1 year ago
    Yep – you can invest from a position of strength, or weakness, and it comes down to the grind of accumulating that cash with which to initially invest. For me it was a matter of years of consistently keeping expenses low and saving and investing the cash I accumulated bit by bit.
    Greg Parker Contractor from Montgomery, AL
    Replied over 1 year ago
    Right. A lot of new investors don’t want to hear it but, slow and steady is the way to go. My wife and I built, lived in, and sold for 20 years. That is a pain in the butt with all of the moving and raising kids in half-finished houses, but it paid off and now we are in the position to pay cash for flips and BRRRR’s. And, I still drive the 98 Toyota 4-runner we bought when we got married. Slow and Steady – there’s title for your next book.:)
    Darryl
    Replied over 1 year ago
    Would love to see a copy of you lease… I’ve been in this business for 6 years (been in the Army for 23) and am always looking for ideas better than mine…
    Scott Trench President of BiggerPockets from Denver, CO
    Replied over 1 year ago
    Hi Darryl – BiggerPockets is releasing landlord forms on a state by state basis. As always, make sure to have them reviewed by your attorney. You can check them out here: https://www.biggerpockets.com/forms
    Jessica
    Replied over 1 year ago
    Thanks, Scott. This was a tremendous article share. Happy hunting =)
    Scott Trench President of BiggerPockets from Denver, CO
    Replied over 1 year ago
    Thank you Jessica!
    Nancy Bachety Rental Property Investor from Babylon, NY
    Replied over 1 year ago
    Thank you for providing so many details. In a world of financial secrecy, it is refreshing. I’m wondering why you chose it invest with a partner when you were in a position to go solo and you’re self managing. Was it something about this particular deal, an allegiance to a partner, the desire to have extra cash on hand, or something else? Thanks for your insight and for sharing.
    Scott Trench President of BiggerPockets from Denver, CO
    Replied over 1 year ago
    Nancy – thank you for this comment. It was all of the above! I trust this partner with my life, and he brings a lot to the table. I think that together we are able to share much of the management burden conveniently.
    Jeff White Rental Property Investor from Denver, CO
    Replied over 1 year ago
    Congrats on the deal Scott! As a finance guy, I especially enjoyed a breakdown like this. Also, not many duplexes selling for that much in Denver let alone a fourplex. Even though the numbers aren’t the best relative to midwest ~2% deals, the chances of appreciation and rents increasing is much higher in 20-30 years than those markets IMO. I think it is a fantastic long-term hold. Barnum is an upcoming area, and I think it will be very valuable for you and your partner. Also, one bedroom units usually attract single tenants and couples, so I think the maintenance and repairs will be less as well compared to renting to a family for a two bedroom unit. Do these units have any value add besides paint, appliances, carpet, etc? Any chance to add coin-operated washer dryers and squeeze out a little more rent?
    Scott Trench President of BiggerPockets from Denver, CO
    Replied over 1 year ago
    Thank you Jeff! Unfortunately, there is really not that much to value-add here. The structure and units are incredibly simple, and while we can potentially add a stacked washer/dryer unit in some of the units, and may do so, that’s the limit of the economic improvements that I believe I can make to the structure.
    Eric Du from Allen, TX
    Replied over 1 year ago
    Great article Scott! I’m looking to follow a similar path to purchase my first property: living more frugally to save up enough to get started. Makes a lot of sense to me! Reply Report comment
    Eric Du from Allen, TX
    Replied over 1 year ago
    Great article Scott! I’m looking to follow a similar path to purchase my first property: living more frugally to save up enough to get started. Makes a lot of sense to me!
    Kevin Dickson SFR Investor from Denver, Colorado
    Replied over 1 year ago
    Since it’s “ugly from the front” you can add some value there. Most leases don’t allow those #@#$% dishes.
    Lynne B. Investor from Denver, Colorado
    Replied over 1 year ago
    Thanks for the article, Scott. I know that investing in a hot market isn’t as easy, but you are proof that it’s still possible to find value investments here, and I’ve experienced that too. I love Denver and have two fourplexes in the South Broadway/ Baker area. I bought the first one six years ago when deals abounded in Denver, but the second one was purchased last year at a similar price point. It was not an easy deal, but the hoop jumping I did was certainly worth it in the end. In a market like Denver, I know there are still deals to be had, it’s just more challenging to find them. I have found that when you can see value where it has been overlooked by others and can move quickly you can still get a deal here. I had offers in on 5 properties over the two years before my last deal closed, and every time I was disappointed, but I had to remind myself that there is always another deal, even in a hot market. Good luck on your journey- it’s a wild ride but definitely worth it!
    Zachary Englert from Waipahu, Hawaii
    Replied over 1 year ago
    Hey Scott! Great post and congrats on your deal. If you’d be willing, could you share some details about your partnership? Did you split the upfront costs 50/50, is cashflow split 50/50, how do you break up the management piece, did both of your incomes qualify you for the loan, etc?
    Jake Thompson Rental Property Investor from Brownsville, OR
    Replied over 1 year ago
    Congrats on your recent successes Scott! I like how you started with a good deal for your market and have a plan to make it a great deal for any market! Were you telling others about the properties you were looking for before you had the cash saved up to invest or do you think it’s better to wait until you’re in a position to buy?
    Philippe Johnson Real Estate Investor from Bradenton, Florida
    Replied over 1 year ago
    Thanks for the great article Scott–very helpful. A few questions: 1) Despite agreeing to buy for the asking price, do you have a methodology for determining a reasonable CAP rate based on the area (e.g., I sometimes use apartmentvaluation.com when practicing valuations)? 2) Was 25% down the only viable option for a loan for this property (vs. 20%)? Thanks! Phil Johnson
    Tim Woosley from Lincoln, Nebraska
    Replied over 1 year ago
    Thanks for sharing your experience with us, Scott. It was educational for me!
    Darwin Crawford Rental Property Investor from Scottsdale, AZ
    Replied over 1 year ago
    Love it. Reminds me of my home market (Scottsdale – also white hot), where you have to be fast and capitalized to make anything happen. Doing this to me is like hunting, you practice your shots 1000 times, and spend time glassing on the top of a hill. When you see a good one, you just execute. Nicely done, keep it up, and how long did it take you to write a book?
    Scott Schultz Rental Property Investor from West Bend, WI
    Replied over 1 year ago
    interesting article, Im really interested in how you will weather the storm when the next correction happens, Im assuming you have long term fixed debt, so thats a plus, but looking at your market, the rise is fast and steep, and the fall could be just as fast and steep, its just a matter of time. What is you strategy when you are evicting 50% of your tenants because they lost their jobs, and your values are half and cant sell? buying near the top with that little room is scary to me, I have been an REO broker since 2006, i saw many investors loose it all because they played financing at 80% and couldnt make it through the vacancies and evictions.
    Lance Middleton from Huntsville, AL
    Replied over 1 year ago
    Awesome post Scott! One question I have is at what point do you decide to hire a subcontractor? I know you you like to do most work yourself so I was surprised to read you hired out some work with you living so close to this property. Also, I’m digging the new BPM podcast and thanks for turning me on to MMM! Good stuff!
    Andrew Syrios Residential Real Estate Investor from Kansas City, Missouri
    Replied about 1 year ago
    Great case study Scott, well done!
    Eric Egeland Specialist from Long Grove, IL
    Replied about 1 year ago
    Great post.
    Jamie N. from Katy, Texas
    Replied about 1 year ago
    I invest in fourplexes also and really enjoyed your article. Thanks!
    Gabe Cinquepalmi Rental Property Investor from San Francisco, CA
    Replied about 1 year ago
    Great post! Your strategy mirrors my own, and it’s nice to read about a solid deal that wasn’t a mindblowing home run. I also like that you don’t write with hyperbole or force “7 things”. 🙂
    Andrew Massie Real Estate Professional from Kingston, Minnesota
    Replied 9 months ago
    Nice job Scott Trench!! I really enjoyed your story. It goes to show the importance of having the right acquaintance at the right time. Also, one could apply this same set of circumstances using different numbers, i.e. different location and property values, and achieve much the same R.O.I. I am still saving up for my first deal and hoping to get one finalized before the end of the year!
    Suzanne Goodman Rental Property Investor from Mountain View, CA
    Replied 9 months ago
    Being a Bay Area native but also having lived in Denver, it is always amusing to me when Denverites freak out about how expensive it’s getting. I mean, I get it, prices are definitely going up but you can hardly buy a 4-plex on the peninsula for less than $2M (in a shitty neighborhood) and even going out to the greater Bay Area, a 4-plex in Oakland (yikes) or worse, Richmond is still closer to $600k on the low end. So, boohoo, Denver, you don’t have my sympathy, lol. I enjoyed your article, Scott. I still keep my eyes out for properties in my area – in the midst of a loan application process so I can make an offer on a unique house-hacking opportunity that will actually cashflow very nicely, but I think I will eventually invest in Colorado (and probably move back there one day). The trick is to build my team there which I know can be tricky. And in the meantime, save, save, save.