SIXPLEX Rollercoaster Investment

[Allie M. Stanisel]

Investment Info:

Large multi-family (5+ units) commercial investment.

Purchase price: $826,000
Cash invested: $206,250
Sale price: $1,135,000

Single level 6 unit building with a laundromat. The building featured mixed 2-bed and 3-bed units.
Rents equaled $8,300/m. Laundry produced $200/m.
I held the property for 3 years-- gained $300,000 + in equity and $300,000 + in rental income/ coin laundry.
Ben & I did one full rehabbed and 2 partial.
1031 exchanged the funds to a commercial NNN lease in Kansas.

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

1. This property was located close to I-84, which links the East side of Multnomah County to downtown & PDX.
2. It was single level - tenant retention is greater when there are no stairs or noisy neighbors on top.
3. Initially purchased as a long-term hold and I knew value would go up for that asset and location.

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

I found the property on the MLS and purchased it in bulk with two other duplexes from the owner - totaling 10 units.
I took my commission off of the top and negotiated $20,000 off during the inspection period.

How did you finance this deal?

Initial financing came from a hard money lender at 9.99% with a balloon after one year. Financed $650,000 and put down about $200,000.
Refinanced at $740,000 six months later and used the $90,000 equity to purchase another multifamily property.

How did you add value to the deal?

We rehabbed/ cleaned up 3 units and brought rents up to market. They were $400-$500 under rented.
Had high turnover which caused 5 tenants to move out - only one stayed.

What was the outcome?

An amazing, cash-flowing 6 plex, $90,0000 back from refi which bought us another multifamily property.

Lessons learned? Challenges?

Pay close attention to local ordinances and state laws. I served notice of new ownership and rent increase by $400-$500 right when we closed on the property. 45 days later Multnomah county put a 7% cap on rent increases.
It would have taken 7 years to get rents up to market if I missed the July 1st deadline.

Inherited tenants were also very upset about the rent increase. They all threatened lawsuits, naturally. Unfortunately, the units were so under rented I couldn't secure conventional financing, and I did not have $650,000 to pay the balloon at the end of my ONE YEAR term - ergo, $500+ rent increase per month.

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

MYSELF!!!!!!!! I get notified when a property within my parameters goes live on the market. Ben and I were doing a walk-thru on one of our duplexes and we dropped everything and wrote a full-price offer on all 10 units that second. We saw the value and knew that type of property would perform very well.