How We Purchased a $650k Triplex with $0 of Our Own Money (pt. 2)

[Matthew Von Dwingelo]

If you didn't get a chance to read pt.1 then the link to pt.1 is below, make sure to read pt.1 first to take the full value of how we structured/worked this deal! Part 1

I know there are a ton of investors out there that have large sums of money, and don't have as much time to invest into finding their next deal.... however that was not our situation. All I really had was time, not much money. I'm sure there are other avenues for finding good deals, but we found this deal by me making some cold calls to expired listings. For those that don't know, and expired listing is a property that was on the MLS for sale, but for one reason or another it did not sell, so it "Expires" off of the MLS. Many realtors & Investors cold call expired listings. At the time I was full time practicing real estate at a real estate team here in Atlanta, and I was calling looking for some listings. As I was cold calling I came across this property. The seller (Chris) answered and at first (due to the literal hundreds of calls he was getting) he was not interested... but after some more talking, I convinced him to let my parents (my partners) and I come and check out the property & see if we would be interested in buying it from him. FYI, just so y'all know I am not 100% inexperienced, I have been active in the REI/RE industry now for the past 3 years, and have been surrounded by it all of my life. My mom has been a property manager for the last 23 years, and my dad has been a handyman for since he was 18... so I really do have a strong foundation around me that has helped a ton. I say this to say that if you are a new investor, and you don't have that type of foundation then I highly recommend you begin building that foundation by going to networking events, stopping by properties that are being flipped and talking to whoever is in the property about the deal. Familiarize yourself with REI before you jump into a deal like this. It took me 3 years of hands on Driving for dollars & talking to every flipper/contractor I came across, selling multiple wholesale properties before my time to purchase a property actually came. And when it came, Thank God I had an awesome foundation of family/connections to help.

Anyways, back to the story... After we got the appointment booked, the next step was to actually crunch some numbers to see what we could offer on this property. I needed to pull comps & see how much $ we had readily available while making some assumptions on the condition of the property. So after pulling some comps of multifamily properties it was apparent that the value of this property was easily $650k... I mean there was a stinkin duplex right up the street that sold for $475,000. And luckily, almost every comp I pulled was showing a MINIMUM of $200k/unit. And for those that didn't, I made sure to call the previous/current listing agent and ask how they priced the property. Turned out every single one that wasn't measuring up had its own reasons. (Foundation issues, flood plain, etc) So the way I looked at it, the valuation was solid. After we got the value of the property, that is when we had to figure out just how much we could offer. We knew A) My dad would take care of the repairs, which means we would save a lot of $ by not having to pay a General Contractor, and B) all we had readily available was about $13,000 & C) there was an existing mortgage of $367,000 (In part 1 I was actually wrong... my apologies. The loan balance was $367k, not $365k). 

So thanks to all of the lessons I was able to learn from the people around me/ Bigger Pockets/ The "subject to" King Ron Legrand, I knew the best way for us to purchase this deal was by purchasing "Subject to" the existing mortgage. (To get a better understanding of what subject to is, please read part 1 of this post.) We had $13,000 readily available, add that to the existing mortgage, and our max offer was $379,900. Once again, because we knew the ARV of the property was $650k we were not too worried about the cost of the repairs. There would need to be something extremely major for the repairs to ruin this deal, and considering all three units were still occupied, it was as close to safe as possible to assume the property wouldn't need $200k in repairs. (P.s. to those investors on here who are going to blast me for making that assumption... stay tuned before you comment, haha) Bottom line, after crunching the numbers we now know A) the ARV is $650k, B) The most we can offer is $379,900 C) We didn't have a lot of money to be investing with D) There would be AT LEAST some repairs that needed to be done... so we will need to find some money to cover those. But we had enough info to go and meet Chris. 

We show up to the appointment I'm still in my suit from the day of work, lol. And my dad is wearing what he calls his "Dress slides" LOL. Which are just his slides that Don't have paint on them 😂, and my mom is just dressed like a normal, casual human being... lol. We knocked on the door to his unit (He lived in one of the units) and he came out. After some small talk, I asked if we could take a seat before we go and view the property. The goal with taking a seat before the viewing is A) take control of the sale B) get an understanding of his situation C) build rapport as we're doing it. So we sit down, start getting an understanding of why he wants to sell, he tells us his situation etc. Once we had a good understanding of his situation, I asked if we could check out the property. The fun part :). 

He walked us through all three of the units, and it was INSANE how great of condition the property was in. It needed small cosmetic tweaks, but that was it. We were confident that the repairs would not blow the deal... and we could find the funds to cover the repairs. So I asked again if we could go take another seat on the couch, this time we talk numbers. We got an understanding of where his head was at as far as pricing goes, and then we just went for it and dropped our highest and best offer of $379,900 while purchasing "Subject to" his existing loan. The plan was that we would close in 2 weeks subject to the existing mortgage and then we would have another 18 mos to pay off the existing loan by selling or refinancing the property. 

And he said... YES!!

JK, it wasn't that easy ;) 

After we explained to him what "Subject to" was and the potential drawbacks (Discussed in part 1), understandably he was a bit weary about moving forward with the deal. He wanted to talk to his attorney. 

So we used what is called the "3rd party close" and offered to have put a clause in the special stips stating that the P&S was contingent upon the approval of his attorney. And that eased his fears. We wrote up the P&S right there in his unit, we all signed it, and shook hands.

After 3 years of grinding in the industry, We finally got our first deal under contract. Praise God. 

Now this was a bittttt long as well! lol, so stay tuned for Part 3!! 

In part 3 I am going to tell you about

A) the roadblocks we ran into along the way

B) How we overcame said roadblocks

C) Things we will NEVER do again... 

D) How this property will help us purchase our first apartment complex

E) How We raised the funds to bring our (My partners & I) total financial investment to $0

F) & If any of you care... lol... my WHY for why I am doing this. 

Stay tuned for Part 3: (Not Posted Yet)