Small multi-family (2-4 units) buy & hold investment.
Purchase price: $122,500
Cash invested: $35,000
Second duplex purchase with intent of it being BRRRR #2. Purchased in May 2018. After non-renewal by tenants I was able to complete renovations in 3 months, and take total monthly rent from $1,275 to $1,950 and refi out all construction costs. Additionally increased value from $135k to $210k with ~$30k renovation budget. Have a 30 year fixed conventional note on this @ ~$900 in cashflow after all expenses.
What made you interested in investing in this type of deal?
Initially was interested in this deal because it was next door to my first investment, and I knew the condition of the property was below market comps. Since I'm an owner/manager of my properties it was attractive simply because of proximity to my first rental
I was familiar with the neighborhood and knew exactly what I would be able to increase rents too with a little bit of work. Additionally I knew my "fall back" could always be keeping it as is and still collecting fair cashflow on this.
How did you find this deal and how did you negotiate it?
Saw FSBO sign and contacted owner direct from previous interactions with him. Initial asking price was $165k which I offered over the phone with a walk through contingency. After first inspection of the property I was prepared to walk away, and told seller my best deal would be $122.5k. After a few days his attorney contacted me and asked how quickly we could close, and if we would assume the property as-is.
How did you finance this deal?
Conventional financing initially, with cash for rehab.
How did you add value to the deal?
Property improvements of ~$30k increased value from $135k to $210k appraisal in just under 1 year.
What was the outcome?
Increased rents from $1375 monthly to $1950 with full reimbursement of funds through conventional cash out refi.
Lessons learned? Challenges?
Double my timeline for renovation for sure. Always have an exit strategy, and concrete agreement in place with contractors. We saved a lot of money working with local "handymen" but as a result our lofty timelines were blown. In the end we are very happy with the results, and we got an awesome crash course in BRRRR in a short period of time.
Rehabs do always take longer than you expect. Well done!
So your total cash invested was $35k, with $30k going to rehab. And you bought it with conventional financing. How did you finance $122k with only $5k to use for down payment + closing costs?
Congratulations and thanks for sharing! What was your exit strategy, may I ask?
@Michael Masterson congrats
So for your financing you used a conventional loan initially and then refi'd to a new conventional loan based on the updated value?
@Justin Clemmer should’ve read rehab costs of $35k. Conventional financing of standard 25% down of purchase
Price. Good catch!
@Jeff Kao initially I didn’t have one panned out. I was fortunate that the deal went smoothly, and had I needed out I could’ve dumped at any point for what I was into it for. Not ideal but I would’ve avoided losses I suppose
@Zack D'Aiello exactly. Albeit the property was in pretty poor shape it was fully occupied at purchase so I was able to use a local institution who knows the potential of multi family properties in the area so they didn’t give a lot of push back with items that showed up on the appraisal. I assume it didn’t hurt that I had the cash available as well at their bank.
Great job @Michael Masterson !
Those are really good prices for a multifamily property.
@Michael Masterson Congrats on the deal!
Just have two questions:
1. You purchased initially with conventional loan then refinanced with the same lender? Did you use a local bank?
2. What did you find during the walk-through inspection that caused the price to drop significantly?
@Michael Masterson well done! Congrats and best of luck continuing that deal momentum
sounds like a win. so you left the 25% down payment in correct? So just over 30k?
@Chris Marte yes I used the same lender for the purchase and refi. It’s a local bank with a pretty solid understanding of the dated homes in the area.
With it being such a competitive market I made an offer without walking through. Previous owner said a lot of things that simply weren’t true. New windows, roof, furnaces, central air, and so on. I felt it was a very good deal at $165k given those Assumptions. Upon walk thru those items along with quite a few others needed attention relatively quick. The furnace was from 1966 so it certainly did not have AC.
Overall the structure was solid and honestly could’ve stayed as-is and been profitable. But it just wasn’t the type of property I wanted to have long term. Our strategy is nice properties we would live in ourselves. We’ve found offering simple amenities like granite, stainless, etc really lets you decide the rent. At least where we are. Plus it doesn’t hurt the resale when the time comes
@Joe Kelly purchased $125k. Financed $93,750. Initial appraisal was $135k
Rehab ~$30k with an ARV of $210k. Took new loan amount up to 65% LTV instead of the max 75% just to protect a little in event of downturn. So put all rehab costs back in pocket plus a little cushion to set aside for any unforeseen costs on the other units along with ability to fund a website, local marketing campaign, letter campaign for future buys (estimating around $2000 to start there)
May regret the conservative LTV later but trying to be safe in the event we want to sell down the road.
What was the name of the local bank you used?
Was this property in Lakewood?
@Chris Marte First Federal Lakewood. They operate on FNMA guidelines but have a common sense approach to appraisals in my opinion. If you want a contact DM me. Same goes for the Cleveland market if you’re looking to invest
There. Have a couple very good agents I’d recommend.
@Michael Masterson congrats and nice work!
Hey , just wondering how you refi under 6 months and got your rehab money back?
@Ryan Keenan same lender and two appraisals were required when the value came in that much higher.
And under 6 months?
@Ryan Keenan purchased in May 18’ fully occupied, completed renovation In 19’
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