First Deal = $1600+ Cash Flow!!

[Nikki Closser]

Hi! I wrote a post 4 months ago asking what you all would do in our situation -- sell or keep our Seattle house. Several of you commented and it really helped us solidify our decision, so thanks to all who commented! Here is the post for reference: https://www.biggerpockets.com/...

Well, we decided to sell the house and it sold for way over what we expected and we walked away with zero regrets and a huge chunk of money to invest with. Fast forward and we now have a 6 unit townhouse building in Michigan (near where we live now) that cash flows $1600 after all expenses including property management and this is with 5 of the units still at $150-$350 below market rents. Three of the units are 3 bedrooms, 2 half baths + 1 full bath and two of the units are 2 bedrooms, 1 half bath + 1 full bath. 

The property had been on the market for 2 years, but when we ran the numbers it looked like you could cash flow without changing anything, so we couldn't figure out why it was still on the market. The listing agent told us that he gets multiple calls per week about it, but that the seller just will not budge on price. It sounded like people kept offering lower and he kept saying no. 

So, knowing this info and knowing that it would cash flow for us at full price, we made him an offer. We said we would give him 290K (he had it listed at 297K) with 40K down if he would do seller financing. He came back and said yes to seller financing at 5% interest (which we couldn't believe since we heard seller financing is usually a higher interest rate). And then we negotiated a 20 year amortization schedule (and he wanted a 5 year balloon payment).

There were 5 full units and 1 vacant. We did some remodeling in the vacant one (spent about 8K on floors, painting, new vanity in a bathroom, and redid kitchen that we hired out and my husband is a master electrician so he put in new switches and fixed any lighting issues and a couple other little things) and we put it at market rent. Old owner was charging $625 for the 3 bedroom and market rent is $966. We are working on raising rents for the other 5 units over the next few months $25-$50. All of the tenants were on month-to-month and had all been living there at least for 2 years. 

The previous owner mostly took care of the outside, but the interior is pretty dated and there are a lot of little things to do. Our property manager toured each unit with each tenant and asked about any issues. The only big thing was that one tenant had been living with bedbugs for almost 2 years since she moved in. I lost my mind over this because of psychological trauma from having bedbugs in a hotel room when I was in Nepal and I ended up in the hospital, but that's a story for another day haha. Anyway, she said the landlord told her if she called an exterminator, he would evict her. So crazy! She had powders and spray that she was trying to use. Her unit was otherwise very clean and I seriously wanted to cry for her that she had been living with them for so long. Luckily, the exterminator found no evidence of them in any other unit and it was only $980 for the guaranteed treatment. I thought for sure it would be more. Anyway, that was our only big issue coming in and she was so grateful that we were willing to take care of it. 

So, each time someone decides to move out, we will remodel another unit. What I love about seller financing is that we don't have to cash-out refi once we get the appreciation up and are ready to get a mortgage on it to get our cash back out--it's just getting a first mortgage on it at 80% LTV with our credit union. We should be able to get our money back pretty easily between 12-18 months. I love how with commercial, the value of the property goes up when the NOI goes up and the previous landlord had the rents so low, that has been easy to get the NOI up!

So, for now, we are cash flowing $1600 and we expect to be at $1800 cash flow by the end of the year. This is obviously if no huge maintenance issues come up and if someone moves out, the potential for cash flow goes up even more. 

That's the story of my first deal (if you don't include our primary home turned airbnb turned sold for investing)!