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

Off market opportunity to purchase four separate 4-plexes that are all identical and next to each other from the original builder. The rents were below market rates and mostly on month to month leases. The total rents were $17,400 at time of purchase with units rents between 1000-1200. The buildings/unit did not need any major upgrades and had been well maintained.

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 closing period 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. Four separate loans for each property.

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 to $1500 a unit within 3 months with little turnover and no evictions. My current cash on cash is around 9% which met my investment goal.

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 very well)