Multi-Family Success - doubled valuation in 7 months!
Shout out to all the help and advice I received on BP over the years, defiantly made this acquisition much easier!
Description:
We love investing in the San Lorenzo Valley (Ben Lomond, Felton, Boulder Creek, Brookdale). Our mountain community has many unique properties - this property used to be a small summer resort consisting of 5 small cabins that had been in one family for about 70 years. In the last 15 years or so the property had fallen into disrepair with many of the cabins unlivable, dilapidated, and 100% vacant.
Our goal was to bring this property back to its former glory while maintaining the rustic community and neighborhood vibe that is the San Lorenzo Valley. At the same time we wanted to help provide community housing to locals - we ended up succeeding in both.
What made you interested in investing in this type of deal?
Since we live in a such a high cost area (medium home price in the Santa Cruz County is $923,065) we required a deal with significant value add potential in order to enable us to refinance our money out at the end. Because of this we needed to find a difficult problem (property) that needed solving - something that would scare most other buyers and investors away, low enough on the economic scale as to not attract “big money,” and unique enough to require a more flexible type of thinking. We had to focus on identifying unique strengths that might give us a small but critical advantage over our competition - in other words we needed a niche.
Our niche turned out to be the most common thing about us - our family and the simple fact that we are local to the area. The property was in such bad shape that it would not qualify for conventional financing and as an assortment of cabins it was not a typical straight forward multi-family deal. Our familiarization with the area, local contacts, market rents/values, and the community allowed us to build a strong rapport with the seller and present a very competitive and competent offer other buyers could not duplicate.
How did you find this deal and how did you negotiate it?
We found this deal on the MLS of all places. The acquisition of this property was less of a negotiation and more of a relationship building opportunity. Since the property had been in the sellers family for over 70 years and had been their summer vacation spot for all that time, they were not simply selling an investment but a piece of their lives. This is a very important distinction that a lot of investors miss - treating sellers of this nature, like dollars and cents investors, is a mistake and likely a big turn off to the seller. Similar to the seller, we were investing for the longevity of our family and a chance to build generational wealth - selling to us is a continuation of the sellers goals and purpose and not just a calculation or monetary gain.
The point here is that identifying the type of seller is just as important as making the right offer. With that said, all of this is for nothing if you are not sincere in your approach and honest in your dealing with people. When our offer was accepted it was 15% lower than the highest other two cash offers.
How did you finance this deal?
The seller owner-financed 70%, private money for 10%, and we put down 20%. We were able to lock in a very favorable interest only rate for 3 years with the intention of refinancing as soon as possible.
How did you add value to this deal?
We were able to bring the units back up to their original condition by a mixture of sweat equity and help.
What was the outcome?
Seven months after purchase and all our hard work the property doubled in value and we were able to refinance 100% of our money out at 70% LTV. This was a home run for my family!
Lessons learned? Challenges?
Relationships are what create great deals. Plain and simple.
We had many challenges and lessons learned. The challenge/lesson that sticks out the most is contracts between family members. It is incredibly important to make sure this part of any deal is nailed down before proceeding with any deal.
Family relationships are worth more than number of good deals out there.