First Multi-Family Accepted Offer

[Nicholas U.]

I live in Lafayette, Indiana and have owned a single family rental for a number of years.  It makes excellent cash flow and I have been wanting to find a multi-family property to invest in.  So about 4 months ago I started looking and watching the market.  I wanted to buy in Lafayette because I know the area extremely well and have good ideas of where there is good potential for growth.  I quickly learned that the rental market in Lafayette is extremely hot.

1. Expectations from sellers are very high.  Most wouldn't even meet the 1% rule and would require repairs.
2. Properties went fast.  On and off the market in a few days
3. Properties that stayed were dumps and not cheap.  Sellers refused to lower price
4. Properties are being bought from people outside the state and some sight unseen

So I expanded my search to Indianapolis and some of the surrounding areas, while still paying attention to any new listings in Lafayette.  I see a number of people on Bigger Pockets wanting to get into the Indianapolis market and it makes somewhat sense to me.  There are lots of properties that you can either flip or rehab into rentals and even the ones fixed up are not a bad price.  For newbies like me it makes it easier to get into the game because in Indiana banks want 25% down.

Knowing this I was also extremely cautious...  I have family and friends that do and have lived in Indianapolis.  In good and not-so-good neighborhoods.  If you aren't careful you will be burnt.  I contacted some of my realtor friends from the area and they notified me that they would contact me if they believed if anything was in a spot that is or is becoming attractive.  Suffice to say I didn't get much feedback.  Similar to Lafayette, if something good appeared it soon disappeared.

I started contacting the Seller's Agent almost immediately after listings appeared so I could be the first, or one of the first, to see any properties.  I gave them numbers that I believed would work, BIG THANKS to Bigger Pockets and their Real Estate Buy or Hold Tool, and if they rejected it I was ok.  One duplex was built in 1890 listed for $89,900.00 but there were warning signs that there was knob and tube and upon asking it was confirmed.  There was also plumbing issues, plaster issues, and bathroom issues.  I still made an offer but only at $83,500.00.  It did have a new roof and furnace and the layout was nice and in a pretty good location.  Figuring I had $40,000.00-$50,000.00 in repairs I felt it was fair offer for the market.  They got asking price with no inspection.  Oh well...  The next property was a 4-plex for $250,000.00.  First 3 units were pretty good and I was getting somewhat excited...  Then the 4th unit was shown.  Smelled of gas and completed destroyed.  Again it got close to asking.  

Now in some areas that might be ok but in Lafayette and the area it was in there was a limit on how much rent these units could get.  I would have only made a 2% cash on cash return...  No thanks.

Finally, one came one the market.  3-plex but 11 beds and 6 bathrooms.  $205,000.00.  Went out and other than the gutters the place was in great shape.  It could use some mini-splits but new furnace, 5 year old roof that looked in very good condition, 2 units mostly renovated.  Most of work that needed to be done appeared cosmetic.  I offered asking contingent upon inspection and here we go.  The cash on cash return is around 16% and because of the size of the units there is significant growth opportunity for being able to increase the rent in future years and for the property value.  

In the end, I wanted to say after lurking around here, reading, posting, watching webinars, and just being patient I think that I am in a great position for the future.  I will have a plumber, electrician, and contractor come with me on the day of the inspection to make sure I didn't miss anything but if anyone has any other suggestions on where to go from here it would be appreciated!

Thanks for reading!