How We Purchased a $650k Triplex with $0 of Our Own Money (pt. 1)

51 Replies

First things first, I am in no means an expert nor am I an attorney (Consult an attorney & please don't take this as legal advice)... I just figured that there are some learning experiences in this deal that may be helpful to some of you, so I figured it was worth it to share the story! If any of you have any questions/concerns/tips, please feel free to message me/reply on this thread! 

Bottom line we were able to purchase this property by buying it "Subject to the existing mortgage". Essentially what that means is we went and bought this deal while keeping the current financing in place. At the time of purchase there was a VA loan on the property with a total balance of $365k. This existing loan balance would be included in our total purchase price (Considered a credit to us on the final HUD statement), which allowed us to purchase the deal without bringing an additional $365,000 to the closing table & allowed us to not need to qualify for a new loan in our name.

Before I move forward, you need to know the risks (This is the one that I am aware of... there may be even more) for purchasing a deal subject to the existing mortgage. The "Due on Sale" clause is defined by wikipedia as follows: "A due-on-sale clause is a clause in a loan or promissory note that stipulates that the full balance of the loan may be called due (repaid in full) upon sale or transfer of ownership of the property used to secure the note. The lender has the right, but not the obligation, to call the note due in such a circumstance."

What that means, is once you close on the property, because the existing note is still in place... but the property has been Sold, the bank has the ability to literally call the note due & force the buyer (us) to pay off the full existing balance of the note ($365k). If we don't pay it off in a specified timeframe, the bank can move forward and foreclose on the property. Which means any financial investment into the property prior to the foreclosure will be lost (Repairs, down payments, etc). Once again, I'm not an attorney, and previous patterns do not guarantee future results, but as of this exact second that I'm typing this post, the banks very rarely move forward and call the note due as long as the buyer continues to make payments on the note. 

For the sake of not making this single post too long... I am going to finish this discussion post tomorrow morning around the same time and I will link part 2 to this post right after I finish. 

In pt.2 I will be including

A) Exactly how we found the deal

B) The Appt (Objections, how we overcame objections, exact numbers/structure of the deal)

C) The closing (How we found an attorney that works with deals like this)

D) the Repairs (How we kept our entire budget @$30k/How we financed it)

E) How we're achieving Air BNB Success on the Property

F) How this property set us up to buy a quad (Hopefully with $0 down) 

Whole lots of good stuff coming up... and after typing it all out, I could see it possibly turning into a 3 part discussion post if Pt. 2 gets too long! lol 

Also to make sure y'all are interested in a pt. 2 & to bring more people to this thread (more people will be able to take some value out of this!) please vote for this post & reply below.  

Pt. 2 BP Link: (Not posted yet)

Updated about 1 year ago

Check Out Part 2!!! https://www.biggerpockets.com/forums/311-buying-selling-real-estate/topics/788573-how-we-purchased-a-650k-triplex-with-0-of-our-own-money-pt-2?page=1#p4631799

Originally posted by @Account Closed :

Another “ad” post for bigger pockets. 

Hey man, I appreciate the comment, but I don't completely understand it. 

Are you saying that I am advertising as a testimonial for BP? Or are you saying I am posting this solely for the purpose of advertising? 

To be actually touch on your comment, I would like to add that I am extremely thankful for BP since BP is actually where I learned about subject to, lol. 

But as far as the second part... I actually have nothing to sell, lol. Yes I do run a digital marketing agency for Real Estate investors... but I actually found this deal by cold calling, lol so it is definitely not a way for me to advertise my Digital Marketing. Also, I'll tell you what, I'm definitely not advertising to start cold calling for other investors, haha. 

So I'm not 100% sure what you meant by your comment, would love to get some more clarity! 

Best regards.  

Updated about 1 year ago

Part Two Has been Posted, here is the Link! Check it out :) https://www.biggerpockets.com/forums/311-buying-selling-real-estate/topics/788573-how-we-purchased-a-650k-triplex-with-0-of-our-own-money-pt-2?page=1#p4631799

Originally posted by @Tchaka Owen :

Note: some VA loans are assumable which would negate the potential 'Due on Sale' clause.

Great note there! This VA loan actually is assumable as well! (However we don't have the financial means to take that avenue since it would essentially be us still having to qualify for the loan)

So that's why in our position, we had to take the sub to route, to avoid the lender from being able to take us out of the deal. Which means we are at risk of the Sub to. 

However, that is a super good note for someone who was in a position where they would have been able to qualify for the loan! 

Thanks for the comment my friend!

@Jesse Aaron and @Anthony Dooley

Without knowing what it rents for, how can you possibly state the OP overpaid for it?

What if it rents for $20,000/month? Doubt it does, but I don’t see how you conclude he overpaid without knowing most of the numbers. Here in CA we can cash flow even when paying $200K+/unit. Rents are the highest in the nation.

Originally posted by @Account Closed :

@Jesse Aaron and @Anthony Dooley

Without knowing what it rents for, how can you possibly state the OP overpaid for it?

What if it rents for $20,000/month? Doubt it does, but I don’t see how you conclude he overpaid without knowing most of the numbers. Here in CA we can cash flow even when paying $200K+/unit. Rents are the highest in the nation. 

You made my point for me. This isn't CA. $365,000 can buy a lot in Snellville, GA.

 

Originally posted by @Matt M. :

@Matthew Von Dwingelo

Out of curiosity, how many more years on the note, and how long did the seller give you to pay it off?

 Hey Matt, great question my friend! 
so there are still 27 years on the note, so we’ve got time! 
And as far as the term to pay it off I’ll be including that in the second part which I’m going to post in about an hour!

Originally posted by @Anthony Dooley :
Originally posted by @Saj Shah:

@Jesse Aaron and @Anthony Dooley

Without knowing what it rents for, how can you possibly state the OP overpaid for it?

What if it rents for $20,000/month? Doubt it does, but I don’t see how you conclude he overpaid without knowing most of the numbers. Here in CA we can cash flow even when paying $200K+/unit. Rents are the highest in the nation. 

You made my point for me. This isn't CA. $365,000 can buy a lot in Snellville, GA.

 

Hey guys! I’m really excited this post got yalls attention! 
please pay attention to the second post that’ll be coming in Ab an hour where I let you know the actual price that we purchased it at! (Not $650k!) we have an insane amount of equity here :)

 

Originally posted by @Matthew Von Dwingelo :
Originally posted by @Erik M.:

Another “ad” post for bigger pockets. 

... I actually have nothing to sell, lol. Yes I do run a digital marketing agency for Real Estate investors... but I actually found this deal by cold calling, lol so it is definitely not a way for me to advertise my Digital Marketing. Also, I'll tell you what, I'm definitely not advertising to start cold calling for other investors, haha. 


Yes, you do have something to sell.

 "I am a marketer by trade, I help real estate investors who are struggling with a lack of deals by taking them through a comprehensive digital marketing process to generate more motivated-seller leads giving them more time & money."

It comes across as a self promoting post like half the posts on here these days. Pt 1? C'mon. 

 

Originally posted by @Account Closed :
Originally posted by @Matthew Von Dwingelo:
Originally posted by @Erik M.:

Another “ad” post for bigger pockets. 

... I actually have nothing to sell, lol. Yes I do run a digital marketing agency for Real Estate investors... but I actually found this deal by cold calling, lol so it is definitely not a way for me to advertise my Digital Marketing. Also, I'll tell you what, I'm definitely not advertising to start cold calling for other investors, haha. 


Yes, you do have something to sell.

 "I am a marketer by trade, I help real estate investors who are struggling with a lack of deals by taking them through a comprehensive digital marketing process to generate more motivated-seller leads giving them more time & money."

It comes across as a self promoting post like half the posts on here these days. Pt 1? C'mon. 

 

Ahhhh, I hear you on that my friend! In a sense to be honest, it is a self promoting post. I don't necessarily have the most experience in the industry, but my goal is to be able to share the experience I do have, and to hopefully find some people who may want to connect with me and we can exchange value. They share their experience with me, and I share the small amount I have with them. I guess that was the plan. Didn't mean to bother anyone my friend, as a 21 year old investor, I don't really know too many people to talk with about RE investing so I'm just looking to make some new connections! 

At the risk of overly promoting myself, I would love to connect with you my friend and see if there is any way we could exchange value! 

Enjoy your week my friend, 

Matthew

 

Dain … Im sure down here in Texas you can find a Multi Family for that price. 

@Brandon Keener @Maugno M. Account Closed

Y'all... my apologies, but I am typing the second part out right now and it is a bittttt longer than I expected, I have to leave for work in 8 minutes, it is likely that I will be posting it after work today! Unless I post part of it now, then the rest later today or tomorrow. 

I look forward to hearing y'alls thoughts! :) 

Sounds like a risky investment for someone who has little experience. Why didn't you take the 285,000 and put it towards a DP on $1,000,000 property such as a 16+ unit building in a different market?

Anyway, sorry buddy it just doesn't come across as a humble "I want to learn from more experienced people." post.

You bought at sub 6% cap rate and have a due on sale clause hanging over your head for unforseen amount of time. Now if you have the money or your parents have the money to pay the loan off if it becomes necessary, I guess that's cool.


Also remember the risks of underwriting property assuming they can be used indefinitely as airbnb. Good news is this one seems to break even cashflow or a little positive without buying cashflow with your money that's in the deal, assuming its the one on 1** F******W....as a long term rental.




Originally posted by @Alexander W. Schuyler :

@Saj Shah

One bedroom Apartments by the LAX Airport, about 1000 or so, blew me away when my friend’s father told me he pays that much for a small one bedroom apt. Do not know if they are demolished now,

 I'm actually surprised the 1 bds are so cheap there near LAX. We rent our 1 bd unit out for $1290/mo, and this is in Decatur, GA, not LA.

Originally posted by @Account Closed :

Sounds like a risky investment for someone who has little experience. Why didn't you take the 285,000 and put it towards a DP on $1,000,000 property such as a 16+ unit building in a different market?

Anyway, sorry buddy it just doesn't come across as a humble "I want to learn from more experienced people." post.

You bought at sub 6% cap rate and have a due on sale clause hanging over your head for unforseen amount of time. Now if you have the money or your parents have the money to pay the loan off if it becomes necessary, I guess that's cool.

Also remember the risks of underwriting property assuming they can be used indefinitely as airbnb. Good news is this one seems to break even cashflow or a little positive without buying cashflow with your money that's in the deal, assuming its the one on 1** F******W....as a long term rental.




Wow, I'm assuming you must have found that via the tax records my friend! That is the correct property, while you're at it check out the price we purchased it for! You'll see there we did not need even close to a $285k investment to purchase! 

I hear you my friend, I guess I posted it with this caption with the intention of being able to educate some people, while also peeking their attention! I must say, the headline worked perfectly given it seems like there is a good bit of discussion on the post. I do think that it seemed a little "Braggish" which was not the intention, but unfortunately sometimes a headline like this one was required to ensure people would check out the post. 

Also, you're exactly right, if we did have $285k it would have been an amazing avenue to leverage that for an apartment complex, but we don't quite have access to funds like that as of today. The plan is however to refi this property, cash out, and then roll the funds into a larger property & just rinse and repeat until we work our way into an apartment complex like the example you used. It will be an exciting day when we get there... just not there yet, haha. 

 

Originally posted by @Storm S. :

Everyone saying 650 is to much for a triplex lol, in my area triplexes go for 1.5M

 LOL GOOD GRIEF!!! That is insanity right there lol. 

But I bet the rents are also super high there as well, so it probably works out! 

And yea, I don't really understand 100% why people are saying it's too much if they don't know the exact market. Quite frankly, the $650k is a valuation based on comps! (Not the price we purchased it for) lol.