First Multiplex property purchase

3 Replies

Under contract for a 6 unit complex in high demand location where rents are rapidly increasing. Purchasing from an estate. Property on market almost 200 days, price dropped from 225k to 195k in December, got it under contract for 158k, with quick 2 week close. During our first round of negotiations it came to light that the property was uninsurable until roof got replaced. Estate couldn't find any insurance policy and they currently have 2 tenants, they had another lowball bidder, so we lowballed with 2 week close figuring they were ready to dump it and the strategy worked.

Downside, building has been neglected, units need complete rehab and we won't know full extent of repair until we tear into walls, which is a must in order to fix sagging in floors along center. Had engineer and foundation company inspect, both said foundation was good.

Estimate 60-70k in complete rehab costs

ARV 320-340k

Projected cap 13.5% 

Private lender at 6%, no fees

24% downpayment from personal funds

Final plumbing & electrical inspections tomorrow

I called city zoning, turns out we can build another building and add 10 more units. My agent sent me this listing. It never came up in my searches.

Plan is to get current tenants out ASAP. Rehab and have 100% rented in April, then get a commercial loan to build additional units.

Currently I have a SFR also good location, premium rent, 3 miles from this property. My business partner has a condo and storage units he's done well with, but this will be our first "professional" deal. We recently partnered for real estate investing, were under contract for a house flip but decided to walk away.

We've done a thorough inspection of the "bones", tomorrow is really focusing on mechanicals, electrical, plumbing. Is there anything else I'm missing?

Got insurance quotes (after roof replaced)

Got roofing quotes, costs built into rehab costs.

Any advice?

How does the deal sound?

Not sure what the rent rates are or the gross income, but from what you have posted,MIT sounds like you have a very good deal with huge upside. One additional upside in adding another building on the lot is fantastic.

@Joey Middlemiss  Other than I am jealous?  LOL, are you going to use a property management company?  If so you should also start checking them out and get them on board so they can start marketing the place and finding tenants, as soon as one apartment is complete for pictures.  You also have an opportunity with the existing tenants as well.  You maybe able to phase the rehab and move the existing tenants to rehabbed units for the new rent to help keep cash flow during rehab.

Thanks guys for the feedback. Greatly appreciated. I will PM to start. I have been a landlord off/on for 15 years and have an excellent track record picking good tenants. We will gut and completely rehab units (industrial modern style), including new plumbing, so I expect maintenance will be minimal. 

Projected gross rents are:

3 / 1 - $900

2/ 1 + loft - $850

2 / 1 - $800

1/1 + loft - $700

1/1 - $650

1/1 efficiency - $575

Gross rent - $4475

Utilities paid by tenants

Taxes are low - $1023 and will drop to under $900 after sale

Insurance is right under $2000

Both tenants are undesirable and I will help relocate them day after closing. I'm very selective about my tenants and prefer to invest more $$ into the remodel and get quality tenants that are willing to pay premium for an awesome place. This strategy has worked well for me.

Plan is to pull construction loan out for new building once we are at 100% occupancy in the spring. 

These units will rent on the first day of showing. I know the area well and my SFR has always rented on the 1st day of showing. Complex is in high demand area with very little rental availability, walking distance to shops, 1 mile to hiking, interstate, huge dog park and downtown.

In this area, Craigslist is the goto source for rentals, even the PM companies use it heavily.

With this being our first partner deal and "professional" buy I'm afraid I am missing something that may be glaring right at me. So any tips are welcome.

Also, should we go right into building the second building, or should we flip some properties first?

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