Duplex Dream...or Disaster

[Zachary Willis]

Investment Info:

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

Purchase price: $213,000
Cash invested: $224,000

I purchased a recently remodeled duplex in my neighborhood utilizing an escalation clause. The home is painted brick, side-by-side on their own water and electric meters, new roof, new hvac, new interior. Almost all work was completed, but they hadn't installed gutters, I had to purchase kitchen appliances, and there was some standing water in the yard. We walked away when we found water in the crawl, but the seller negotiated finding a company to put in a sump pump, dehu, and a vapor barrier.

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

I had refinanced my home and was aching to get another deal, but had my eyes on wanting a small multi-family property. I drove by this home in my neighborhood as it was being renovated and I knew as a newbie investor that I could easily maintain the yard and the home had very little in the way of capital expenses since almost all of the work was brand new.

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

I procrastinated on speaking directly to the contractor when I would see work was being completed, so instead I had to fight for it on market. Fortunately, I was only competing against a few other offers and our upfront cash and willingness to put down closing costs helped us win the deal.

How did you finance this deal?

I worked with a commercial lender who bundled my other SFH into one loan. I refinanced my SFH and did a cash out refi on my previous home for the down payment and upfront costs.

How did you add value to the deal?

We ended up walking away when we found standing water under the vapor barrier. We received a quote from a local foundation company and asked the seller to cover the costs, which they balked. When we signed release papers, the seller came back and said he would install a sump pump, dehumidifier and a new vapor barrier, while also paying for the termite treatment.

What was the outcome?

We purchased the home for the agreed upon price with the additional work in the crawl space. We have had our hands full with this property, but believe it will eventually be a wonderful investment as a buy and hold. We currently have had no vacancy costs (even with one tenant exiting their contract early to move home) and are currently renting it higher than our best expectations due to the demand in our area.

Lessons learned? Challenges?

We learned there are pitfalls to buying recently completed fix and flips. Contractors are looking to get the home listed ASAP, and are prone to cutting corners and making the home look nice while covering its warts. I learned the hard way, with many more issues with the foundation, poor hvac work, and no caulking in the shower kit install. We had to invest heavily in fixing the foundation to fix poor workmanship.

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

We worked with Kate and Tina Friar in Lynchburg, VA, who are a great team. I also worked with Matt Adkins at American National Bank, who was great at giving me advice and answering questions.