Just closed on my 3rd deal!
Investment Info:
Single-family residence buy & hold investment in Kahului.
Purchase price: $95,000
Cash invested: $1,000
This is a long term buy and hold rental condo for cash flow in Kahului. It's in a large building with over 350 very similar units, so comps are very easy; current sales prices are between 125-140k (this unit would be worth 120-125k because it has not been renovated) and rents are between 1,600-1,800/month. This is my 3rd condo, all in the same building, and I self-manage which increases my cash flow. My goal is to get 3 more of these and then pool all of my equity to acquire a 2-4 unit home.
What made you interested in investing in this type of deal?
This is the only building on Maui I can afford to buy in. When I was about to buy my first property OOS, a successful investor suggested that I try to purchase in this C/D class building in my own market first. I listened to him and now own 3 units in this building producing about $550 in cash flow each. This one I got 80% LTV at 5.5%, total closing costs were $24k, HOA's are $585/month, unit will rent for $1,700-1,800/month. So I'm forecasting between $500-650/month; depending on maintenance.
How did you find this deal and how did you negotiate it?
I told a Realtor I see surfing all the time that I'm looking for motivated sellers in this building; I want to buy multiple units below MV. Another agent mentioned to him that he inherited a unit there, & wanted to sell fast.We had a showing the next day & an offer to purchase submitted at the showing(offered $90k,w/ no inspection contingency).The seller countered the next day at 95k & I quickly accepted. Note: My agent wanted me to start at $110k - so remember: realtors can be "retail-minded".
How did you finance this deal?
I financed the first two units with American Savings Bank, but when I brought them this one they said they will not finance more than 2 condos per borrower in a given building. So I got a broker and he got funding from Bank of Hawaii. I was really nervous because this building has been impossible to finance since the recession, I did not think BOH would fund it. Their UW's limit on delinquent HOA's is 10% and this building was at 9.98%! So it was really close, but they did it!
How did you add value to the deal?
Mostly by getting it for the right price. During the showing the seller said that he lived there as a kid (which told me he had a hard childhood bc this building is mostly section 8 tenants) he also said 8 people lived in a 1 bdrm unit w/him. I told him I find abandoned old units, clean them up,and work w/HUD to provide families in the homeless shelter w/ a place to live, so I get to make money while helping others. My agent said that struck a chord with the seller, and probably got me the deal.
What was the outcome?
The tenant hasn't moved in yet - but we have submitted a lease to HUD and I expect them to be able to move in this weekend (7 days after closing). I had an open house once I got final loan approval, so I could run apps and choose a tenant during escrow and have less time vacant after closing. I had most of the repairs done over the weekend, so far the total is at $350(I'll pay $350 worth of repairs for a $25k price discount any day! lol) I'm expecting CF of $650/month best case; $500 worst case.
Lessons learned? Challenges?
I wish I would've asked for a price reduction. I was nervous that the UW would deny my loan for this building and I would have to ask for an extension, and I knew 95k was a great deal for this unit; so I chose not to ask. But I wish I would have; I wanted to use a mold/water damage report to justify a 5k price reduction and ask the seller to come back down to my original 90k offer but I didn't ask bc I thought if I needed more time he would cancel on me and sell it for 120k. Never hurts to ask!
Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?
Beau Dyer from KW Island Living did an outstanding job of bringing me this off market deal and getting the offer accepted. Christian Cramer from Hawaii Real Estate Group is always killing it. And Darren Au from Primary Lending on Oahu made a miracle happen by getting this loan funded... seriously, I still can't believe he got BOH to lend at this building!
