Updated over 8 years ago on . Most recent reply
First Multi-Family Flip
First off, as I always get interested with pictures here are a few before and after pictures. I have also put a few links to all our marketing at the bottom.
The Swiss Cheese model is a model used for determining how accidents are caused. I am going to flip that model and use it for real estate and how each layer of cheese lining up with the next makes the deal that much better and when they all line up it's a home run. For this deal all the holes in the Swiss cheese block lined up perfectly and the outcome was not an accident.
The way we found this deal was through the good 'ol MLS. It wasn't listed for more than a few minutes before we saw it, and of course we knew a 4-plex with 2bd 1ba units at $1.2m it was a smoking deal. Many may gasp at that but in the heart of San Jose a few blocks from the university no one would blink twice at paying that. We didn't and immediately contacted the real estate agent and made a full asking offer. By the next afternoon it was in contract. That was the hardest part. Getting this property in contract was lucky but behind that luck was a lot of hard work and energy. Like they say luck favors the prepared and we were through the first layer of cheese.
We now had the property in contract and realized what we were up against. Well we kind of already knew. But we had super low rents and tenants that had lived there for many years. Total rents for the building were about $4,400. Once we closed we quickly worked with the tenants and they gave us notice and all of them were moving out within the next 2 months. That part could not have gone smoother and with any other tenants it may have not worked out the way it did. Another slice of cheese in line.
Once the first tenant left we started getting bids for work. We haven't done too many deals, about 8, so we don't have a solid team. We figured this was going to be the property that we build that team. We interviewed and got quotes from about 10-20 subs to do all the different pieces of work and about 5-10 GC's to do the project as a whole. We ended up choosing one of the GC's and got that next slice of cheese lined up. We got quotes anywhere from $30k-$50k a unit. we ended up paying a total of about $30k per unit and the total work took 1 month for all four units. This team was in and out and every day we stopped by the property looked completely different. I think we can give them two slices as they were exceptional.
During the time we were looking for contractors we were also looking to sell it for a quick $400k profit. We didn't really get any bites, a few tire kickers telling us we were crazy thinking this will sell for close to $2m with rents above $2,600. In addition during this time we started reaching out to multifamily agents that had sold a lot of properties in the Silicon Valley and were getting their opinions on rents and resale value. All said getting over $2m would probably not happen as it would be breaking a lot of records and getting rents at $2,700 or above would be tough. This kind of gave us the kick in the but to see what we could do.
After the rehab was done we started advertising the units for rent. It was quite slow at first but after a week or so we started getting way too many inquiries and had three of the four units rented. Two at $2,700 and one at $2,800. The holes in the cheese just kept lining up for us, we were anticipating when they would stop. We left the best unit vacant and staged for showings. We created a marketing package, link to view is below, and blasted it to our inner network at $1,988,888 with a commission for an off market sale at 3.5%. We had a few people interested at the $1.9m mark but figured with the little exposure we got we weren't going to need to go below our asking off market. We got it listed and the phone started to ring. We got two offers over asking and ended up taking the offer at $2.018m. This was the last and best piece that was right on point, the offer we accepted was cash with a 7 day close and non contingent.
After rehab and holding costs we were into the property for just under $1.4m and walked away with over $600k. All our slices of Swiss cheese lined up ever so perfectly for our first multi family flip. After all was said and done a few of the agents who wanted the listing didn't believe we sold it for over $2m. With this sale set a few records for a 4-plex sale in San Jose.
Any questions ask away.
Marketing Package
https://drive.google.com/open?id=0B-UqmCuMV9cwZFFY...
Flyer
https://drive.google.com/open?id=0B-UqmCuMV9cwS2Fu...
Before and After
Most Popular Reply
SJ has rent control, and if your tenants were well under market rents, I'm curious why they left so quickly. Did you do buy outs? Otherwise they'd have no motivation to leave, given that I'm sure they were of limited income ability too, hence they would have a hard time renting another place at market value. Of course if there is no rent control, unless they have a long term lease, you are free to do as you wish.