1st multi-family investment

[Kristi Kandel]

Investment Info:

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

Purchase price: $540,000
Cash invested: $150,000

4 plex with 2 - 3bedroom 3 bath units and 2 studios

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

multi-unit deals cashflow and are less risk overall - also it's in a prime market getting a private and public overhaul

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

I sent a letter to this specific community and offered fair market value. The owner initially was interested in August of 2018 but wanted 600K and the deal just did not pencil. We did not want to buy too high and force a huge rent increase and kick the locals out as we already have a severe housing shortage. So we tabled the 4-plex. A month later the owner informed us that maybe another owner would be interested in selling. In late November the original seller agreed to 540K price and we bought.

How did you finance this deal?

This is the key to making the deal pencil. We found a credit union (MACU) with a special portfolio product that allowed for 16.91% down for a conforming loan and 4.875% interest rate. The next best offer was 25% down and 6% interest. While MACU gave a 30 year loan the note is actually due in 15 years. We decided by then we'd refinance, pay it off or sell and that 15 years was plenty of time.

How did you add value to the deal?

By negotiating the purchase price down and buying off market we closed with 160K equity. The appraisal was 700K and we bought for 540K. We are remodeling one of the studios completely, remodeling the master bath of the 3 bedroom, scraping and painting the exterior, reinstalling the privacy fences, fixing the balconies & added a shared laundry room for all 4 tenants.

What was the outcome?

In July we'll refinance the deal and pull out 130-150K or almost our entire investment. We'll maintain a double digit return and hold the property long term. This home is in a market where the rental housing inventory is non-existent and a waiting list on open units. We plan to keep the current tenants and not raise the rents beyond the minimal increase we did following our purchase.

Lessons learned? Challenges?

Have stamina for the deal, be creative on the structure and never count on a professional to do their job right. ALWAYS double check their work. From realtors, escrow agents, lenders, etc. If you can hack it you can find sick deals. Stay on top of your contractors to avoid budget overruns and to set realistic expectations.

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

N/A