Client Success Story! 4 Unit Investment in Washington DC

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Client Success Story! 4 Unit Investment in Washington DC

Cassidy BurnsBusiness Member
Investor · Alexandria, VA · Member since 2016 · 859 posts · 460 votes

Hi BP,

I wanted to share one of my clients investment property success stories.  Take a look! 

4 Unit Property in Shaw Subdivision Washington, DC off of 10th and Rhode Island (great location)

-Purchase Price: $1,965,000 w/ $30,000 Seller Credit

-Appraised Value: $1,975,000

-$40,000 in initial equity on the purchase 

25% Down Payment from 1031 Exchange of Single Family House he bought in Pittsburg, PA 5 years ago.  Purchase for $350,000 , Sold for $850,000.  Rolled $450,000 profits into this building.  Had to come $50,000 out of pocket to complete purchase.

4 Units:

-4- 2 bed/ 1 bath Units

-4 Parking Spaces w/ Roll Up Garage

-Patios off of each unit 

-Projected Rents : $3,299 / lower levels  $3,650/ upper levels

-Currently has 1 tenant rented for $3,700 , 3 other units vacant.

Closed July 8th.  First mortgage payment not until September 1st.

-Corporate  Housing company reached out to me when they saw that I had it under contract and came out for an inspection .  They made us an offer: 

-$11,200 / monthly guaranteed rent for 23 months

-1st Month Free for all units

-Will take over the entire building

-Furnish the entire building

-Manage the entire building 

-Pays all utilities! 

-Will take over the building July 9th......0% vacancy for the first 2 years

Not as high monthly rent as we had initially projected/ could have got, but the lack of work, the passiveness of the investment, and the added peace of mind knowing that the building will be taken care of made it a no brainier for my client.  

His monthly payment is $8,900/ month

Postive Cash Flow : $2,300/ month which he is using to expedite the pay down of the loan as this is going to be his retirement in 15 years.  

Beautiful Deal in a great neighborhood in Washington DC.  I project this building will be worth $2.2-$2.3 million in 10 years.  

On to the next! 

[email protected]540-960-1507
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Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
7y

@Michael Randle Believe it or not, it would actually be possible to have close to 0% vacancy in much of DC.  I have a client one client who has primly located properties in DC that has a less than 1% vacancy rate over a an 18 year period.  In the DC suburbs where there is less demand than in the city I average a 2% vacancy rate, and I could cut that down if I marketed the property earlier when I know I have tenants leaving, but I get too busy selling properties that I dont optimally run my rental portfolio.

[email protected]301-893-4635Podcast Guest on Show #192
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  • Jeffrey Arreguin
    Rental Property Investor · Newport News, VA · Member since 2019 · 10 posts · 3 votes
    7y

    @Cassidy Burns that was an awesome story! Congrats and thank you for sharing.

    1Reply
  • Cassidy BurnsBusiness Member
    OP
    Investor · Alexandria, VA · Member since 2016 · 859 posts · 460 votes
    7y

    @Jeffrey Arreguin thanks for reading! 

    [email protected]540-960-1507
    0Reply
  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    7y

    @Cassidy Burns

    Great deal!!  Well done.

    0Reply
  • Michael Randle
    Aurora, CO · Member since 2016 · 158 posts · 118 votes
    7y

    @Cassidy Burns,

    Congratulations and well done!

    I want to preference the rest of this message by saying I am not trying to rain on your or your clients parade. But I do have some questions about the numbers. And I do want to give credit that a win with a 4-plex in DC is amazing and clearly shows your skill and the determination of your client. I am mainly writing this for yourself and other people to pick apart my math and my theory craft.

    But I do have some questions about the numbers, and please correct me if I am wrong in any way. I would like input for the community as a whole also to see if I am missing something.

    You client is having a positive cash flow of $2,300 a month, is he not putting anything aside for CapEx, Repairs etc? My numbers state the only way to get that positive cash flow, from $11,200 Rent, $8,900 Mortgage, would be to forgo any sort of CapEx or Repairs fund, I do know the company has a 0% vacancy rate for the first 2 years, but he also isn't factoring any sort of possible VacRate?

    It seems your client is getting a $27,600 ($2,300 x 12months) yearly return on a $500,000 cash down payment (I might have misread your opening and it might be $450,000). That comes out to a 5.52% CoC return rate. That isn't bad, but it isn't amazing either.

    Next, the projection of $2.3M in 10 years indicates less than a 1.2% year over year property value increase. Which doesn't strike me as overly impressive. But I am not 100% on the D.C. market right now (Learning, which is another reason for me to write this).

    Lastly, if everything goes 100%, with no extra funds needed for repairs or CapEx, and a 0% VacRate over the next 10 years. And the investor is able to contribute 100% of the $2,300 to paying down the principle he will have a balance of $840,000. And if he sells for $2,300,000 that will have been a profit of $960,000 on an initial $500,000 investment. (Not counting fees etc).

    That is a great return on investment if I give someone $5 and in 10 years they give me my original $5 back plus $9.60. But it seems like there is a lot of variable that will probably not sustain for a 10 year period. Foremost a 0% VacRate, 0% CapEx, and 0% expense rate. Plus the ability to continually pay down the loan further with the $2,300 a month.

    Am I wrong somewhere in my theory craft and numbers crunching or am I perhaps being to pessimistic with how things are going to play out?

    Thanks for taking the time to look this over.

    0Reply
  • Cassidy BurnsBusiness Member
    OP
    Investor · Alexandria, VA · Member since 2016 · 859 posts · 460 votes
    7y

    @Stephanie P. thank you! 

    @Michael Randle I appreciate the feedback, and yes the Washington DC market is much different than Aurora, Colorado, as I don't know that market well either.  I do think you are being a little pessimistic, but also I appreciate the feedback.  My clients thought is to pay down his mortgage as quickly as possible using the cash flow. 

    -The #s: 

    He will be renting the units out with 0% vacancy rate for the next 2 years, beautiful.  Luckily , our original projections are $13,800/monthly income (I posted the projections in my first post).   But my client chose to take the $2,600/monthly  decrease to make it a very passive investment.   

    Appreciate the feedback

    [email protected]540-960-1507
    0Reply
  • Michael Randle
    Aurora, CO · Member since 2016 · 158 posts · 118 votes
    7y

    Fair Enough,

    Like I said I am trying to learn the DC area and was wondering if this was an unusual deal and on which side of the fence it fell on.

    Thank you for the feedback.

    0Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    7y

    @Michael Randle Believe it or not, it would actually be possible to have close to 0% vacancy in much of DC.  I have a client one client who has primly located properties in DC that has a less than 1% vacancy rate over a an 18 year period.  In the DC suburbs where there is less demand than in the city I average a 2% vacancy rate, and I could cut that down if I marketed the property earlier when I know I have tenants leaving, but I get too busy selling properties that I dont optimally run my rental portfolio.

    [email protected]301-893-4635Podcast Guest on Show #192
    District Invest Group545 Reviews
    WebsiteView Page
    4Reply
  • Cassidy BurnsBusiness Member
    OP
    Investor · Alexandria, VA · Member since 2016 · 859 posts · 460 votes
    7y

    Agreed @Russell Brazil , location, location, location.  In Washington DC, it wins every time.  

    [email protected]540-960-1507
    2Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    7y

    @Russell Brazil I was going to tag you in this, but I guess you already beat me to it. Would you do this deal if it was your client or your money?

    I understand DC is expensive and high appreciation but 5 percent return? That mortgage payment is awfully high too for the rent receiving but I was just curious

    0Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    7y

    @Caleb Heimsoth

    I probably wouldnt personally do it, but not because of the cash on cash return. Ill take zero or even slightly negative on certain deals. This is just a price point I wouldnt personally do for this asset. Theres just different neighborhoods Id rather be in at that price point, but Im probably only talking about a mile or 2 distance at most. But I think Id rather have 4 seperate $500k condos than 1 $2 million property. But also right about 1 year ago I helped a client buy a 4 unit that was $1.5 million maybe half a mile to mile west of there, and that deal I would do in a heart beat had I had the chance to buy it at the 10% down rate my client was able to do.

    Everyone goals and strategies are different. And coming out of a 1031 exchange might change my perception too.

    [email protected]301-893-4635Podcast Guest on Show #192
    District Invest Group545 Reviews
    WebsiteView Page
    1Reply
  • Account Closed
    Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes
    7y

    13,800 first month free + 2,600 monthly loss x 23 = 73,600

    Wow thats a hell of a price tag for being passive if paying down the loan quickly for retirement is the goal 

    0Reply
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