Duplex subject-to BRRRR

[Mike Williams]

Investment Info:

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

Purchase price: $90,000
Cash invested: $30,000
Sale price: $152,000

Duplex subject-to BRRRR. I took over the payments subject-to the existing mortgage, with the understanding that I would be responsible for the rehab costs. Then, the plan was to refinance the property, pull my money out, and move on to the next deal. It didn't quite go exactly to plan, but almost. However, I learned a ton!

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

I was interested in moving into the multi-family space. I own (and manage) 3 single family rentals, and thought a duplex would be an easy next step.

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

I sent letters to multi-family property owners in Coweta County, and received a handful of calls back. One guy was motivated and I pursued it. I was able to negotiate a subject-to deal because the guy was pretty desperate. He was terrible at managing the tenants, and one of his tenants had cause about 20K of damage to the unit. He had house-hacked it back in the day, but now had wife and kids and just wanted out.

How did you finance this deal?

It was some creative financing and I also brought in personal cash. I did what's called subject-to on this deal - purchasing the property from the guy "subject-to" the existing mortgage. So, no money down, and I was responsible for the fix-up costs. I took over the existing payments to the bank, and I solved the seller's problem of not having the cash to fix the property.

How did you add value to the deal?

It's a duplex and one side was completely trashed by the previous tenant (about 20K) worth of work needed. While I was rehabbing one side, the tenant on the other side moved out, so I went ahead and fixed up that side as well. I was all in for about 30K.

Short list of rehab work:
Floors (lvp & tile), paint, new siding, updated appliances, water heaters, furnaces, concrete sidewalk, interior & exterior doors, new fixtures + more.

What was the outcome?

I was able to raise rent about $200/mo. per side. And I was able to refinance the seller out of the subject-to deal within 6 months. My intent was to buy and hold this property (which I'm doing) and it cashflows about $485/mo. after all expenses. My expenses include management fees even though I'm managing the property.

Lessons learned? Challenges?

Even if you have to pay a little bit more, hire a contractor that's going to get the job done in a reasonable amount of time. I saved some money hiring a handyman to do most of the work, but I lost that money in holding costs (more if you factor in vacancy/lost rents). Also, since there aren't very many multi-family properties in this county, the appraisal process was really hard b/c comps weren't there. Lastly, I was only able to refi out 70% on multi-family. I did the math using 75%. Ouch.

[Mike Williams]

Originally posted by @Daniel Taylor:

So what is the ROI after the refi? seams like you ended up getting stuck with a 13k actual invested amount after refi

After closing costs, I walked away with 10K in hand. So, 20K left in the deal. Cash on cash ROI Is about 22%. Still a good deal, but definitely learned some lessons!