8-unit in Duluth, MN
Investment Info:
Large multi-family (5+ units) buy & hold investment in Duluth.
Purchase price: $225,000
Cash invested: $200,000
Contributors:
Mike Sevcik
8 Unit, brick town-home style building adjacent to downtown Duluth. Building needed a lot of mechanical upgrades, cosmetic work, and had a lot of deferred maintenance. Construction is now complete and the building was fully leased up within 9 months of acquisition.
What made you interested in investing in this type of deal?
Prices in the Twin Cities were on the rise. Comparatively, prices were lower in Duluth, but rents were higher in relation to purchase price. I was looking for more multi-family opportunities at the time, and this happened to show up on the MLS.
How did you find this deal and how did you negotiate it?
This deal showed up in the wrong part of the MLS. It only had a grainy, old picture, and the purchase price was almost too good to be true. Through a few back and forths with the seller's agent. We submitted an offer. It was initially not accepted. They chose to work with someone else. About a month went by, and I received a phone call from the seller's agent. We submitted another offer, went to tour the property, and began working towards closing.
How did you finance this deal?
Conventional financing with an interest only construction loan. Loan was converted to a 25-year amortized loan at the end of construction.
How did you add value to the deal?
Lots of places. The building was really falling apart, hence the low sale price. We had hoped for a little more life out of the roof, but after a heavy winter snow season, and below average cold keeping the snow from melting, the roof needed to be replaced. Unexpected but glad to have a new roof. New electric, plumbing, and heating systems were added, and cosmetic updates like new flooring, cabinets, and paint.
What was the outcome?
A well-located cash-flowing asset in Duluth! We love that there is a lot of investment (around 1 billion dollars) in the hospital system about 3 blocks from our property.
Lessons learned? Challenges?
This was the biggest property we had tackled, and there was a lot of efficiency in having the building mostly vacant when we acquired it. We learned a lot about having the proper contracts in place, and having specific language and consequences for not performing parts of the contract. We had issues with a basement full of personal items left at the property, but held money in escrow that was not to be sent to seller until basement was cleaned out. Get it in writing!
