Closed on a 8 unit here in Denver, Colorado. Actually it's in Wheat Ridge but only local folks will know where that is.
Here is the skinny. Found the seller via my direct mail campaign. I was going to try and wholesale it at first. At the time, he wanted $800,000 for it but had to transfer it to an charitable trust first and then I had to purchase it from the trust. There was so many moving parts that I was concerned I wouldn't be able to get the deal done as a whole sale. I also was concerned that I couldn't find a cash buyer in that price point. I knew the price was discounted but was scared there wasn't enough room to get the deal done. I short I was too timid.
Fast forward about 5 months, I sold a property and after realizing the amount of capital gains tax I would owe I decided to do a 1031 at the last minute. I called the guy up again and he said he wanted $850,000 but I got him to agree to do $825,000 with me taking a commission of $25,000 so the actual sale price was $850,000.
I had to get a loan because I only had 20% down. I found a local bank via a referral by @Travis Sperr who did the deal. The appraisal for the loan valued the property at $925,000. So I landed some instant equity as well as my commission.
It's a great building with a townhouse style layout around a corner. Three 3 bed units, three 2 bed units and 2 units with either extra large bedroom or a spare room. Each unit has 1 and 1/2 baths. The current owner owned the property for 36 years and kept it immaculate. Great curb appeal and nice brick construction. The same building around the corner was turned into condos and sold individually. They are valued at about $150,000 each. Current rents are at $6,400 per month. It is way below market. I figure market rents are about $9,400 per month. We will be going there a little bit at a time over the next two years. The units are in great condition except for one unit that needs updating. Expenses are low because tenants pay their own utilities except for water and trash. The only down side is that it sits on the edge of the 100 year flood plain. The contour goes through the property but floor elevation was above the ground. Based on my previous experience I figured I could get it exempted from flood insurance but after looking into it further I found out that the elevation they now use is the ground in the crawl space. That is about 3 feet below the existing ground so I'm going to be paying flood insurance.
I also learned some things about 1031 exchange. I timed the closing so I would get credit for the months rent and not have to make a payment until next month so was expecting the get some cash at closing. My 1031 agent nixed that. No cash out when 1031 funds are involved. Had I known that ahead of time, I would have worked the closing so that those funds were paid to me outside of the closing.
Here is a street view of the property.
@Bill S. , Nice work! Who did you use for your 1031?
IPX1031 which was also referred to me by a @Matt M. as well as a mortgage broker I know.
Congratulations that is a great story.
I believe you can take cash out in a 1031 exchange. It is know as "Boot" You would pay tax on that. Well rental income would be taxable normally anyway so there is no real harm done,
I want one! :)! Great story! That property sounds amazing! Thanks for sharing.
Well done, @Bill S. - can't wait to hear more about it at a meetup soon!
Congrats BIll is it in Colorado?
Way to use the 1031 to upgrade to a 8 plex!
Very nice deal but can you tell me how much the flood insurance will cost?
Great job, Bill. I did 1031 once, I paid $1000 fee. I thought it was quite expensive, but next time it will be only $300, so I'm not complaining. I would like to buy a multi-family too, north of Seattle.
@Bill S. we just touched on this recently in another forum sting. Rents and security deposits should always and can akways be dealt with outside of closing specifically so they don't mingle with and cloud the 1031 proceeds. It's confusing for a lot of professionals but as more and more cash flow investors enter the fray is becoming more and more important. Congratulations on your deal!!
This is what I dream of. Congratulations!!
sounds amazing. but id never have the balls to drop 850 on a unit.
@Bill S. Nice pickup! CG taxes are getting mighty big. How was the loan process with the local bank? Did they use income in their underwriting or were you able to use just the property?
@Matt M. just the property for underwriting but they looked at my track record before that was approved. At one point they were talking cross collaterialization until the loan officer drove by the property and then he said the bank was good with what I had and they wouldn't require a lien on another property.
@Warren Spahn flood insurance was $1,750/year. I think it's low because it was the rate for the first year due to the fact that they just redid the floodplain and it got included where it had not previously been within the flood plain. I think the agent said it would be $3,400/year after this year.
@Account Closed yes it's in Wheat Ridge.
Congratulations @Bill S.
@Bill S. Congrats!
Does not sound like you are too concerned about flood damage. If you are not aware, there are alternative flood policies available for multi family/commercial buildings that are not available to SFR. They satisfy the bank and FEMA, but allow a $10k, $25k, $50k and even $100k deductible. This reduces the premium much lower than the standard Flood policy. I'll PM you the info.
Good Job Bill!
Great job Bill, that is great to hear that you found a solution to purchase this property!
@Bill S. Very cool, glad the bank contact worked out. Banks are lending right now on the right deals. Wheat Ridge is growing and attracting some nice businesses.
Wow, awesome deal! Great work.
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