From podcast to purchase!
Hi BP nation! Here is my story and the numbers on my first deal since joining BP. I started looking for buy-and-hold properties back in the summer; specifically, small, multi-families. With the help of an investor friendly agent that I met at the local REIA, I purchased a duplex that needed work in a great part of the city. Some background on the neighborhood/city: most of the properties were built in the early 1900’s, approximately 60% of the residences are rentals and it is rare to find anything built after World War II.
With lead laws and the various issues that come with an “older” property, I felt a “newer” unit would fit my comfort level and criteria better for my first deal. So, I located a 2200 sq ft, 3 bed, 1.5 bath, duplex built in the mid 80’s priced at $140,000. Both units were occupied but the tenant in one side was destroying/destroyed the unit. The owner had been an accidental landlord and took a very “hands off” management approach and it was evident. Both sides had deferred maintenance and lots of need for some TLC. Long story short, we negotiated that the side with the tenants that were not taking care of their unit would receive notice that they needed to vacate (they were on a month-to-moth at this point).
After inspection, we found some minor items and a rather sizable repair issue that involved replacing some beams and rot (band board, beam, trim). Due to poor grading and drainage for the last 25 or so years, there was a negative lip abutting the front of the duplex that had to be corrected. After finding these issues and presenting them to the seller and some negotiating, I had it under contract for $86,000.
The now vacant unit received: new carpet/vinyl, cabinets, appliances, paint, interior doors(old ones were destroyed), vanities, toilets, tub surround, HVAC rehabbing and some electrical outlet upgrades. To address the drainage issue, we had to remove the existing concrete pad, re-grade, install proper drainage, replace rotten wood, re-pour concrete and install a small retaining wall.
After closing costs, holding costs, insurance, LLC formation and repairs we have about 120k in it. Do I think I over improved some things? Yes. Do I think I learned a lot for the next time? Sure did. However, for the most part, we now have a completely updated unit with the second being updated within the last 5 years.
Taking Brandon Turner's advice, I nearly doubled my repair/remodel budget and my timetable. While I was in the ballpark I thought I would spend on repairs, I was able to lease it to a qualified tenant within 60 days of closing (under my goal by 30 days). Also, I was able to raise the rent nearly 15% over what it was bringing in prior.
Now, I am in the process of refinancing, placing it into an LLC and embarking on a new phase of my education. I just received the appraisal and the documents from the bank for my 20 year commercial loan. I was able to get 80% LTV but am paying a little higher rate (fixed at 5.8% for 7 years). Now, as if Tom Sylvester was SPEAKING RIGHT TO ME in the podcast this week, my ARV was off. My calculations were based off the value as derived from the income approach (that came in at 160K); however, the sales comparison approach only values it at 125k. Like I said, most of the area is old homes; all the comps were of much older homes and in various conditions. So, instead of being able to pull all my cash out to pay my private lender, I will have about 25k in the deal. Huge set-back? No. Lesson learned? Absolutely.
All-in-all, I have a property in a great section of the city, 100% occupied, bringing in almost $1800/month. Not a home run but an outstanding education and one that is still going to leave me in the black.
I really debated about putting this out here but I have got so much from reading these forums and listening to the podcasts, I felt compelled to share. I would love to hear your thoughts, answer questions, get recommendations and/or feedback, etc. If anyone reading this is on the edge about jumping in…my only advice is to take action. It took me awhile to go from reading, learning, podcast, reading, wondering, doubting, etc, to taking the leap. Sometimes you have to learn by doing, this has done just that.
Happy Thanksgiving!