Buy and hold multifamily in Skagit Valley

[Sam Denny]

Investment Info:

Small multi-family (2-4 units) buy & hold investment.

Purchase price: $3,000,000
Cash invested: $750,000

I was presented with an off market opportunity to purchase four separate 4-plexes that are all identical and next to each other. The seller built them in the 90's and had self managed since. The rents were below market rates and mostly on month to month leases. The seller agreed to allow me to do a 1031 exchange, selling one of my other properties to come up with the downpayment. I was able to use conventional financing with four separate loans for each fourplex. The total rents were $17,400 with units rents between 1000-1200. My property manager has been able to increase all the rents now 1,500 a unit with less turnover over than predicted and no evictions. The units have only required minimal upgrades on the tenant turnovers (painting, flooring in one unit). My cash on cash is around 9% which met my investment goal. Initial asking price seemed high but with low interest rates and rapid rent growth in the area the numbers ended up working out.

What made you interested in investing in this type of deal?

I've been buying small multifamily in skagit valley for the past five years. I grew up in the area so know the rent market well.

How did you find this deal and how did you negotiate it?

My property manager knew the selling agent and heard it was being shopped off market. I was able to convince the sellers to allow for a 1031 exchange and longer clsoing time since the sellers were not in a rush to close.

How did you finance this deal?

Conventional financing with 25% down with a 1031 exchange for the downpayment with some additional funding

How did you add value to the deal?

The current rents were well below market rate but still able to cover the mortgage. I knew there was opportunity to raise rents quickly with month to month leases but knew it could take a year or two with Covid.

What was the outcome?

My property manager was able to raise rents with little turnover and no evictions in 3 months. I kept on the old maintenance person who was doing a good job at an affordable price. He was the uncle of the sellers.

Lessons learned? Challenges?

I had a little sticker shock at first with the price of each fourplex compared to what I've paid in the past but the numbers worked. Always important to do the numbers on every deal because lower interest rates can make a deal work that doesn't seem like it at first glance. I didn't have the initial down payment at first and tried looking for investors through friends and family. It was difficult to get a fast commitment so decided to was worth selling one of my properties to do a 1031.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

lender David Ells (easiest closing I've ever done), PK woolcock agent (knows skagit valley)