Second Property Acquired!

7 Replies

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Sioux Falls.

Purchase price: $250,000
Cash invested: $62,500

Contributors:
@Josh Utterback , @James Kats

Fully leased 4-Plex in B-Class Neighborhood a mile from primary commercial district. Each unit is 2 Bed, 1 Bath, and a garage stall. Property has shared laundry area, currently free to use. Property was built in 1976, and is in great condition. 1 unit was completely remodeled 5 years ago due to a (corrected) water backup. Two units are in good shape, would need less than $1k to turn over. One unit could use a bathroom reno and some work in the kitchen.

What made you interested in investing in this type of deal?

As my second deal, I wanted to stay in the residential (2-4 unit) space. I plan to go small commercial multifamily for #3. :)

How did you find this deal and how did you negotiate it?

I had purchased my first deal from this couple, and at close asked them to think of me if they were divesting any other properties. A year later, they called to see if I was interested in this deal, off-market, with an asking price of $250k. The sellers stated they know it is worth more, but need to sell quickly and easily.

I worked with a realtor who is an experienced investor in the area to ensure a smooth process.

The property has a market value of approximately $350k based on CMA.

How did you finance this deal?

As I was just finishing up a large renovation at my first rental property, cash was a little tight.

Due to huge appreciation in my personal home over the last 3 years, I got a HELOC for $100k and am using part of it for the down-payment on a conventional 30 year loan @ 4%. I am comfortable with this, as it leaves both my home and the deal at 75% LTV. (Market, not sale price) I plan to cash-out refinance in 6-12 months.

How did you add value to the deal?

Working with a property manager with this and future deals. Immediately implement RUBS to recapture water and heat cost and initiate a staggered lease for the 3 tenants on Month-to-Month leases. In spring, modest increase in rents, remaining competitive slightly below market.

What was the outcome?

Added $100k to Net Worth upon closing, cash-flowing $500 a month after all costs and escrows, will increase yearly.

Lessons learned? Challenges?

Learned that due to the state I live in (AZ) my wife has to acknowledge and approve the lease, even though she is not on it, due to Community Property laws.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

James Kats and Metastone Property Solutions of Sioux Falls

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