Client Success Story! 4 Unit Investment in Washington DC

11 Replies

Hi BP,

I wanted to share one of my clients investment property success stories.  Take a look! 

4 Unit Property in Shaw Subdivision Washington, DC off of 10th and Rhode Island (great location)

-Purchase Price: $1,965,000 w/ $30,000 Seller Credit

-Appraised Value: $1,975,000

-$40,000 in initial equity on the purchase 

25% Down Payment from 1031 Exchange of Single Family House he bought in Pittsburg, PA 5 years ago.  Purchase for $350,000 , Sold for $850,000.  Rolled $450,000 profits into this building.  Had to come $50,000 out of pocket to complete purchase.

4 Units:

-4- 2 bed/ 1 bath Units

-4 Parking Spaces w/ Roll Up Garage

-Patios off of each unit 

-Projected Rents : $3,299 / lower levels  $3,650/ upper levels

-Currently has 1 tenant rented for $3,700 , 3 other units vacant.

Closed July 8th.  First mortgage payment not until September 1st.

-Corporate  Housing company reached out to me when they saw that I had it under contract and came out for an inspection .  They made us an offer: 

-$11,200 / monthly guaranteed rent for 23 months

-1st Month Free for all units

-Will take over the entire building

-Furnish the entire building

-Manage the entire building 

-Pays all utilities! 

-Will take over the building July 9th......0% vacancy for the first 2 years

Not as high monthly rent as we had initially projected/ could have got, but the lack of work, the passiveness of the investment, and the added peace of mind knowing that the building will be taken care of made it a no brainier for my client.  

His monthly payment is $8,900/ month

Postive Cash Flow : $2,300/ month which he is using to expedite the pay down of the loan as this is going to be his retirement in 15 years.  

Beautiful Deal in a great neighborhood in Washington DC.  I project this building will be worth $2.2-$2.3 million in 10 years.  

On to the next! 

@Cassidy Burns ,

Congratulations and well done!

I want to preference the rest of this message by saying I am not trying to rain on your or your clients parade. But I do have some questions about the numbers. And I do want to give credit that a win with a 4-plex in DC is amazing and clearly shows your skill and the determination of your client. I am mainly writing this for yourself and other people to pick apart my math and my theory craft.

But I do have some questions about the numbers, and please correct me if I am wrong in any way. I would like input for the community as a whole also to see if I am missing something.

You client is having a positive cash flow of $2,300 a month, is he not putting anything aside for CapEx, Repairs etc? My numbers state the only way to get that positive cash flow, from $11,200 Rent, $8,900 Mortgage, would be to forgo any sort of CapEx or Repairs fund, I do know the company has a 0% vacancy rate for the first 2 years, but he also isn't factoring any sort of possible VacRate?

It seems your client is getting a $27,600 ($2,300 x 12months) yearly return on a $500,000 cash down payment (I might have misread your opening and it might be $450,000). That comes out to a 5.52% CoC return rate. That isn't bad, but it isn't amazing either.

Next, the projection of $2.3M in 10 years indicates less than a 1.2% year over year property value increase. Which doesn't strike me as overly impressive. But I am not 100% on the D.C. market right now (Learning, which is another reason for me to write this).

Lastly, if everything goes 100%, with no extra funds needed for repairs or CapEx, and a 0% VacRate over the next 10 years. And the investor is able to contribute 100% of the $2,300 to paying down the principle he will have a balance of $840,000. And if he sells for $2,300,000 that will have been a profit of $960,000 on an initial $500,000 investment. (Not counting fees etc).

That is a great return on investment if I give someone $5 and in 10 years they give me my original $5 back plus $9.60. But it seems like there is a lot of variable that will probably not sustain for a 10 year period. Foremost a 0% VacRate, 0% CapEx, and 0% expense rate. Plus the ability to continually pay down the loan further with the $2,300 a month.

Am I wrong somewhere in my theory craft and numbers crunching or am I perhaps being to pessimistic with how things are going to play out?

Thanks for taking the time to look this over.

@Stephanie P. thank you! 

@Michael Randle I appreciate the feedback, and yes the Washington DC market is much different than Aurora, Colorado, as I don't know that market well either.  I do think you are being a little pessimistic, but also I appreciate the feedback.  My clients thought is to pay down his mortgage as quickly as possible using the cash flow. 

-The #s: 

He will be renting the units out with 0% vacancy rate for the next 2 years, beautiful.  Luckily , our original projections are $13,800/monthly income (I posted the projections in my first post).   But my client chose to take the $2,600/monthly  decrease to make it a very passive investment.   

Appreciate the feedback

Fair Enough,

Like I said I am trying to learn the DC area and was wondering if this was an unusual deal and on which side of the fence it fell on.

Thank you for the feedback.

@Michael Randle Believe it or not, it would actually be possible to have close to 0% vacancy in much of DC.  I have a client one client who has primly located properties in DC that has a less than 1% vacancy rate over a an 18 year period.  In the DC suburbs where there is less demand than in the city I average a 2% vacancy rate, and I could cut that down if I marketed the property earlier when I know I have tenants leaving, but I get too busy selling properties that I dont optimally run my rental portfolio.

@Russell Brazil I was going to tag you in this, but I guess you already beat me to it. Would you do this deal if it was your client or your money?

I understand DC is expensive and high appreciation but 5 percent return? That mortgage payment is awfully high too for the rent receiving but I was just curious

@Caleb Heimsoth

I probably wouldnt personally do it, but not because of the cash on cash return. Ill take zero or even slightly negative on certain deals. This is just a price point I wouldnt personally do for this asset. Theres just different neighborhoods Id rather be in at that price point, but Im probably only talking about a mile or 2 distance at most. But I think Id rather have 4 seperate $500k condos than 1 $2 million property. But also right about 1 year ago I helped a client buy a 4 unit that was $1.5 million maybe half a mile to mile west of there, and that deal I would do in a heart beat had I had the chance to buy it at the 10% down rate my client was able to do.

Everyone goals and strategies are different. And coming out of a 1031 exchange might change my perception too.

our original projections are $13,800/monthly income (I posted the projections in my first post).   But my client chose to take the $2,600/monthly  decrease to make it a very passive investment.

13,800 first month free + 2,600 monthly loss x 23 = 73,600

Wow thats a hell of a price tag for being passive if paying down the loan quickly for retirement is the goal 

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