Closed first Multi-family yesterday!
I thought I would start posting a few of the recent deals I have done and what better way to start than with my first multifamily that I closed on yesterday (Quad). The quad is approximately 12 miles south of Bridgestone arena in Nashville, TN (GO PREDS!)
Firstly, here is how I found the deal:
This came off a direct mail list specifically geared towards multi-family properties. It took approximately 5000 letters and 6 months of mailing to land this one deal, but it is going to be absolutely worth it. Consistency in mailing and persistence is absolutely key to successful marketing. 5 months of not saving any of my W2 income and not getting a single deal was painful, but if I threw in the towel I would not have a quad.
It was your classic story of an older owner under renting the units and not keeping the property properly maintained. After some negotiation we managed to get the price we wanted of $185,000. “We” being my one other partner in the deal.
How we financed it:
Since we don't have enough money for a 20% down payment we had to close with hard money and then refinance to a conventional long term loan. This is where finding a deal is an absolute must. The bank's property appraiser appraised the quad at $250,000 and the bank agreed to do an 80% LTV. This means they would lend $200k. (250k*0.8)
Our hard money lender gave us 100% of the purchase price of $185,000 at 1.5% point and a 15% interest rate. We closed the deal and it cost us $680 for the closing attorney’s work.
The bank loan has already been approved and we are doing the refinance next week. With the $200k loan from the bank, we will have enough money to pay the HML back, plus their points and interest, plus all closing costs and still have some left for repairs and upgrades. If you find a good enough deal, you can not only put zero down, but you can also get a bank to pay you at closing! The true value is in finding the deal!
Here’s what the monthly numbers look like:
- Current rent: $500/door, ($2000) (severely under-rented)
- Market rent: $800/door ($3200)
- Principal and interest at 5% amortized over 20 years : $1320
- Expense ratio at 50%: $1600
- Total monthly expense: $2920
- Monthly cash flow: $280/month ($3360/year)
- Return on investment: Infinite (No money in the deal)
I most definitely will not be quitting my day job with these numbers but remember my ROI is infinite and not only do I have zero money in this deal-I was paid to buy this quad.
Zero down investing is very much still possible. The value is in finding the deal. It is by no means easy, and in my case it was not cheap.
You can either find an excuse, or you can find a way!
Let me know if you have any questions.
