Multifamily AirBnb House-Hack Sold Within 6 Months! +$65k

[Reed Rickenbach]

I have completed a multifamily value-add project I have wanted to execute on for years. When I first started real estate investing in 2019 I did not have the funds to complete such project, but I found myself in the position to purchase in the $400k range mid-2021. Long story short (the details are below) I purchased a 1928 duplex as a house-hack and converted the bottom unit into a historic AirBnb. I received a cash offer from an out of state investor only 6 months after closing. The property is located in Memphis, TN in the Medical District. I am currently 24 and am a licensed investor in the city! 

How the deal was found: This was an MLS deal listed in June of 2021 - the property was overpriced for the rents in place ($990 for the bottom unit and $800 for the top - $1,790 total). A full-price offer with conventional financing at 85% LTV got the job done with an offer price of $378k.

The property: The property (as mentioned) was a duplex that was built in 1928. There are two separate units (obviously) that are top and bottom, 2,000 sq/f each. Each unit had mid-1970's finishes, so lipstick rehabs were needed to bring the units to market rent. The area easily supported exit sales prices of $450-550k so I felt comfortable offering above what other investors found to be the right price. 

Value-Add: As I lived in the top unit, I painted walls/trim/doors and replaced the formica countertops with granite. Total rehab cost for the upper unit was roughly $3k. For downstairs, walls/trim/doors were painted as well as new light fixtures, and the unit was fully furnished to be a short-term rental. Total renovation cost (including furniture) for the downstairs unit was $13.5k. The unit could sleep 9 folks. For exterior, I had a fence built to separate the backyards. Total exterior cost was $2k. 

AirBnb Value-Add: As most of you know, multifamily is valued based on the net income a property produces. As mentioned, the gross rental income at acquisition was $1,790 per month ($21,480 annually) - after the AirBnb stabilized, it consistently produced $3,200 in net income per month which only represented the bottom unit. Assuming the top would perform the same, the new monthly income would be $6,400 ($76,800 annually). I hired a manager to furnish and manage the AirBnb so I was not involved in the day-to-day operation. 

With a mortgage of $2,175 I was pretty content living in the upstairs unit. UNTIL.... After a few months of operating I received a call from an out of state investor who had purchased the building next to mine that wanted to make a cash offer. I accepted. The numbers landed as follows: 

Initial Purchase Price: $378k

Down Payment: $56.7k

Closing Costs: $14k 

Rehab/Furnishing Costs: $18.5k

Total Cost basis: $410.5k

Sale Price: $475k 

Net Profit: $64.5k

Net Cash Received at Closing: $158k

I know I know, I could have refinanced at a higher value to keep the property. In all reality I plan to take the capital and use it for more value-add projects, and I am just happy that this works as a proof-of concept. 

Time for the next one!