How I purchased an $800k multifamily with no money

[Jon Huber]

Hello, my name is Jon Huber. I just closed on my latest acquisition. It was a 6-unit apartment complex in one of the most desirable neighborhoods of Fort Lauderdale, Wilton Manors. This area is one of the most competitive markets, so I will explain exactly how I found this off market deal. Not only did I not pay any money out of pocket, but I was GIVEN a check at closing for $27,000.

In 2015, I decided to take a HELOC out on a property I owned in Los Angeles. I used that HELOC as a downpayment on a triplex in West Palm Beach, FL. I purchased the property for $235,000 with no money out of pocket since I used my HELOC. Rents were at $800/unit with problematic tenants. As each tenant left, I rehabbed the units, placed better tenants, and increased the rents.

In the Spring of 2020, my triplex was fully rented with rents at $1,050/unit. I sold the triplex for $400,000. While I still owed $175,000 on the mortgage, I chose to do a 1031 exchange into another property with the remaining $225,000.

In the Summer of 2020, I was scouring the market for anything as I was nearing the end of my "45‑Day Identification Period". A property came on the market that was EXACTLY what I wanted. As my realtor attempted to get the rent rolls, it was off the market. The realtor jumped the gun as the seller WANTS to sell in but first needed to separate the utilities. So the agent took it off the market and said we can submit an offer once the utilities are down in two months. Being that time was of the essence, and I know they wanted to sell, I submitted my offer contingent on the separation of utilities. Some back and forth was necessary for the agreed upon price, but lucky for me, it was off market and I didn't have any competing offers. The asking price was $750,000. The final purchase price was $720,000.

Due to complications with the electrical work being done, and paper work with the lender, we were delayed and didn't close on the property until late 2020. Since that time, the market had appreciated even more compressing already tight cap rates. With the newly separated utilities and lower cap rate, and a gross rent collected of about $6,800/month, the valuation would easily surpass $800,000.

Between both closings (triplex and sixplex), I paid about $18,000 in closing costs, including the fees for the 1031 Tax Deferred Exchange. The downpayment on the property was $180,000. I could have done a FULL 1031 exchange, but I chose to do a partial 1031 exchange. This allowed me to walk away from the closing with $27,000 in my pocket. Side note: I will have to pay capital gains tax on that money, but I am okay with that.

Whoever said that you should never sell real estate must have never done a 1031 Tax Deferred Exchange. Not only am I thrilled how it turned out, but I am already looking through my portfolio to do it again.

[Jon Huber]

So, to recap, I was able to use multiple strategies that @Brandon Turner outlines in his book "The Book on Investing in Real Estate with No (and low) Money Down", where another one of my transactions was highlighted on page 215 (shameless plus). I was able to use a HELOC for the first transaction, and a 1031 Tax Deferred Exhange for the second transaction. The combination of both strategies made it all possible. This is why I love real estate.