First Deal - 3 Unit Property in small college town
Investment Info:
Small multi-family (2-4 units) buy & hold investment.
Purchase price: $370,000
Cash invested: $132,500
1940’s home - 1,000 sf 3 bdrm/1 bath on large parcel with a duplex in back potential for addition of more units. This property is walking distance to a college and a quaint college town.
What made you interested in investing in this type of deal?
Listening to Bigger Pockets gave me courage to go after first deal and had been watching local market, which is rural and very limited in inventory. I wanted to do a rehab and be “hands on” so I was looking for something in an area I felt safe to work alone at night and was small enough to practice on without becoming too costly. Also loved the architecture (solid redwood structure) and saw the property’s potential.
How did you find this deal and how did you negotiate it?
Saw it on the MLS and drove by it daily for several weeks. Asking price was $450,000. Thanks to the podcasts I didn't get too emotional about the deal. Instead I utilized the calculators to determine my number. I offered $390,000 and seller accepted. The owner was an older couple, son of original owner, and they were ready to liquidate their rentals and retire. Inspections reflected much more deferred work than anticipated so I requested a reduction to $370,000 and the seller accepted.
How did you finance this deal?
Conventional 30 yr fixed with 24% down through a local bank.
How did you add value to the deal?
Put 92,500 down and spent $40,000 on rehab of main house - foundation rot, all new electrical, new cabinets, flooring, appliances, paint and fixtures. Planning to rehab duplex once vacant and increase rents. Also planning to apply for a lot split and addition of another duplex.
What was the outcome?
I closed in mid-December and finished rehab by mid-January thanks to the help of a contractor. I hired a property manager that I knew from my Rotary Club and she had the house rented within 2 weeks of completion of rehab. The duplex is fully rented but one tenant is only paying half of what the other is. I had served him notice in order to rehab his unit then Co-Vid virus situation stalled things. Currently cash flowing $1,134/month but will increase that by $500 with a new tenant.
Lessons learned? Challenges?
Learned SO much! Everything Brandon and David said on the podcasts is so true - just jump in and learn by doing. I have some exp. in many areas of real estate and remodeling, but this was my first true “Buy and Hold Rehab” rental property. I am continuing to learn California’s landlord and tenant laws and glad I hired a property manager I trust and who is willing to mentor me. Also learned that I love it as much as I thought I would and can’t wait to do it again!
Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?
My RE broker who is a long-time friend and colleague. My insurance agent who handles all of our other insurance and was helpful with flood insurance and knob&tube electrical concerns. A contractor who was introduced to me by my broker and was available on short notice to work over the holidays. He had 3 solid workers and was very hands-on himself....and they didn’t seem to mind this middle-aged lady working alongside them! Would recommend them all!