Small multi-family (2-4 units) buy & hold investment.
Purchase price: $271,650
Cash invested: $90,000
Sale price: $487,075
(AKA our slow-motion BRRR investment)
Split level owner-occupied duplex intended as buy and hold, but we decided to cash out based on appreciation. 54K for 20% down, 10K for a new roof, 10k on drainage, pergola, landscaping, 10k for plumbing and bathroom renovation, and another 6K on appliances, flooring/carpet, and upgrades. We used a HELOC to finance our 3rd owner-occupied duplex purchase that we moved into and lived in for two years before selling this property.
What made you interested in investing in this type of deal?
The truth is we had two kids entering daycare, and our first house purchase was a duplex; we did the math and figured out that we would have no cash flow to enjoy life after paying daycare, so we "had" to but another duplex to increase our cashflow. Seattle was already way too expensive at the time, and we thankfully bought outside of the metro area before the prices also surged in Everett. They were nice in comparison to the properties in Seattle that material issues in our price range.
How did you find this deal and how did you negotiate it?
We had an agent, but I mostly scoured Zillow and Redfin to contact her when we saw something promising. The numbers made sense and it seemed like a good investment.
How did you finance this deal?
20% down conventional.
How did you add value to the deal?
The downstairs unit bathroom was a mess where a leak upstairs was causing the ceiling to collapse; we used the cost of that repair and others to negotiate it down. I have a sense that it turned other investors off, but we were not afraid after doing a 203K renovation loan adding 60K to the purchase price for more challenging issues in Seattle.
What was the outcome?
We did upgrades to make it comfortable with increasing rent and reducing turnover. The neighborhood tenant quality never got above C, and we got out to take the appreciation to reduce our tenant and neighborhood headaches.
Lessons learned? Challenges?
We did not lose our shirt as Western Washington experience tremendous appreciation due to Amazon. If you buy in a C- class neighborhood, it will stay C- and maybe go up a bit to C+. A C- class area means drug dealers move in across the street; prospective tenants don't get out of their car and drive off instead of having a viewing. It means you take folks with less than sterling credit and expose yourself to more human drama than needed or wanted, and it means a rough school for your kids.
Good work @Lee Klejnot . Great return on investment with some good sweat equity. I’m sure it’s a stepping stone to the next big investment!
Thanks, Jared, appreciated; I get the sense as you are from the area that you understand how challenging it is to find good cash flowing multifamily investments in the King and Snohomish County markets are now with the current prices. For the next investment David Greene's "Long-Distance Real Estate Investing" has helped me overcome my fears and concerns of looking at other markets. I am eating up Biggerpockets podcasts, reading, and figuring out my criteria to find a new market to invest in. Wishing you luck in your investments also.
@Lee Klejnot , thanks for sharing. I agree with you that it is not easy to change a C- neighborhood to something higher. This is why we always say "Location, Location, Location'.
We still have good deals with decent cash flow, but they are not so easy to find. We also typically need to do some kind of rehab or value add to get these decent cash flow numbers. That said, as you mentioned, the appreciation in this market is awesome and way better than a lot of other out of state markets.
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