A Deal From Zillow! Just added 10 Units to my Portfolio!

106 Replies

I found a 10 Unit apartment (6 2-bed, 4 1-bed) that had been sitting on Zillow for more than 6 months!  I added it to my portfolio December 1st. I knew the area and market, drove by and did some basic numbers. The following week my broker called to tell me about it. I showed her my discovery info and we put in an offer. Though I ended up competing with an all cash offer, I won with 100% financing!

I’ll offer some detail in hopes of giving perspective for young investors, as well as for those wanting to move into smaller apartments. Feel free to ask questions and I’ll respond as I’m able.

  • Asking price: $399k.
  • Purchase Price: $389k (concessions came off the price rather than as a closing credit that would have reduced my closing costs but saved the seller almost $1,000 in commission, excise tax and capital gains).
  • Appraised Value $450k (appraiser verbally said $500k but limited his exposure on paper!)

RENTS:

  • Scheduled Rent at time of closing: $5655.
  • Actual First Month: $6460 (listing agent didn’t include utility charge in proforma! We discovered the discrepancy while going through Income/Expense reports).
  • Market Value Target $8370 (anticipate 12-18 mo to fully transition due to upgrades required).
  • Rent after 1st round of increases (effective 3/16) $7335. Some tenants had not received an increase in 8 years (paying $525 for a $900 unit!) I had one unit empty at possession that the property management had listed at $625. We had it occupied in 4 days at $895!

Combined EXPENSES have run just under $2k month (taxes, Ins, maint, cap ex, management, utilities, etc). I will cut expenses on insurance ($100/mo less than previous owner), better mortgage terms, care for running water issues, and create other efficiencies (saving $300/mo). I will increase Cap Ex and Maintenance budgets for a net increase of about $500/mo.

FINANCING:
Due to the strength of the deal I was offered 80% commercial financing at 4.25% 10 year note, 5 year adjustment, 25 year amortization. (Payment $1697).

I had previously built a relationship with the Chief Credit Officer of the bank who gave me a signature LOC at 5.25%. I used a portion of this as my down payment (monthly pmt of $350).

UPGRADES NEEDED:

  • The property was negligently maintained by both the owner and “professional” management company. Rents were $200-300/unit under market. Maintenance requests were routinely ignored.
  • Water was flowing in the laundry room, toilets and faucets leaked continually.
  • 2 Ranges had elements missing because they ‘sparked’.
  • Phone cable between pole and building was hanging …at neck level!
  • Zinsco electric panels had never been updated.
  • Siding needs some minor repairs and full exterior paint job.
  • Original 1942 Single pain metal windows need replacing throughout!
  • Laundry room has no ceiling, insulation falling down.

SOLUTIONS:

  • Working with weatherization programs from utilities and local agencies to change out windows and insulation at minimal cost.
  • Commercially certified electrician has been installed a new panel and 2 GFI outlets for $300/unit on weekends.
  • New Pex piping for water supply bid at $600/unit.
  • Increase rents incrementally to existing tenants, and full market at turnover. 1 bed = $750; 2 bed $895.
  • Sheet rocked laundry room ceiling.
  • Repair siding and repaint in Spring. (Roof is solid)
  • New paint, flooring, counter tops in each unit at turnover (aprox $2500/unit).

This was a cash flowing property from the beginning at about $1400/mo. With proper oversight it will increase to over $3600/mo. The value should increase from the $389k purchase price to over $600k given the same cap rate (11.5%). With interior and exterior improvements the cap rate should come down to about 9% giving it a value over $750k! (Anticipated time frame, 18 months).

Congrats on your mulit purchase!

Nice to hear about someone finding a decent deal on Zillow.  I have read on this site and others that "deals" go there to die.  

 The year built (1942) might have scared some investors off, thus why it was still listed after 6 months.   Pex water lines are so much of an improvement over copper.  I do wonder how many newer plumbers will not even be taught how to properly/ correctly "sweat" a copper water line.

Congratulations Curtis!  What a grand way to start 2016. Well done!

Lauren

@Robert Blanchard   Copper?!  This war-era tank has galvanized!  They put a water filter on one unit and offered them $35/mo to pretend the rust didn't exist! 

Well-done!

Originally posted by @Robert Blanchard :

Congrats on your mulit purchase!

Nice to hear about someone finding a decent deal on Zillow.  I have read on this site and others that "deals" go there to die.  

 The year built (1942) might have scared some investors off, thus why it was still listed after 6 months.   Pex water lines are so much of an improvement over copper.  I do wonder how many newer plumbers will not even be taught how to properly/ correctly "sweat" a copper water line.

We are still using copper on  large commercial/gov projects, but even they are starting to allow PEX. Sweating copper is definitely a lost art.

I went through a core program for Construction Trades back in High School.  Thus I learned to sweat pipes.   My joints passed the PSI test (air pressure) but they were not that pretty.

Had a neighbor catch his house on fire trying to do his own plumbing.  Plumbers and Electricians are worth their hourly pay.. most of the time. 

Tempted to try and find a 16 unit building without a boiler for heat, or electric baseboard heat.  The latter is rare in Colorado but sometimes used in Apartment Buildings for the ease of installation.

Well done Curtis. A special thanks for the amount of detail you provided. That really helped my understanding of the transaction. 

@Curtis Bidwell great find! And thanks for the in depth explanation of the deal. Multis are in my future, a few years down the road. It just seems like there is such an upside to being able to add them to the portfolio.

Great deal. Thank you for sharing details.

WOW! That is so amazing! thank you for sharing. I am looking at a 6plex this weekend. It is from a belly up investor and I am hoping that is a great property just needing some work.

Awesome investment, Curtis!  Can you explain a little more about the 10 year note?  Did you find a note investor?  If I understand you correctly, the note covered the down payment?  What are some things to understand about using Notes for financing this deal.

@Derek Ward The primary note is with the bank. It covers 80% of the purchase price (Loan to Value -LTV). It has to be paid off or refinanced in 10 years. However, the payment is based on a 25 year amortization. Also, the rate can adjust 1x at the 5 year mark (up or down depending on the market).

My down payment came from the Line of Credit extended to me.  I have a solid portfolio of properties that have been well managed for several years.  I took my financial statements and historic rent rolls to the banker and talked him through my vision and needs.  Based on my credit, real estate experience and financials he granted me an unsecured line of credit that I used for the down payment and will draw from for the upgrades/repairs.   

Congrats and thank you for sharing. 

Thanks for the quick response, Curtis!  And your explanation was very easy to understand. 

Buy a lottery ticket because you're on a roll... that's an incredible deal on paper! 

I hope it only gets better for you, awesome!!

Very Nice @Curtis Bidwell

Are you going to manage it yourself?  Do you manage your other properties?

Great Deal for 2016!

Solid deal for sure.  Always nice to some real deals with information and numbers to back them up.  Great find!

Originally posted by @Robert Blanchard :

Congrats on your mulit purchase!

Nice to hear about someone finding a decent deal on Zillow.  I have read on this site and others that "deals" go there to die.  

 The year built (1942) might have scared some investors off, thus why it was still listed after 6 months.   Pex water lines are so much of an improvement over copper.  I do wonder how many newer plumbers will not even be taught how to properly/ correctly "sweat" a copper water line.

 Hell. I learned the hard way on how to fix a copper pipe. Upstairs shower had a bad (Horrible) connection on the pipe leading from the bathtub to the shower head. Turn on shower and about 1gph ran down the tub onto my ceiling. Fixed that real quick. Youtube and a shark bite connection had me set to go in an hour. I've fixed a few other copper leaks replacing with pex when I needed a good foot or so run on busted pipes. My connections are starting to look super pretty.

You interested in selling? :)

Nicely done, buddy.  Great tip for deal source, great detail, great numbers, that's what I'm talkin' bout right there @Curtis Bidwell !

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