8+ Unit Commercial BRRRR! $0 out of pocket!

[Wendell Butler]

Investment Info:

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

Purchase price: $467,500

This is a little delayed posting as this project is coming close to complete, but I bought this property with my commercial business Hammerhead Capital Inc. 02/15/2022 for $467,500 after negotiating down from $515,000. I bought this with $0 out of my pocket again utilizing my private lender (once you complete one deal, they love to do another one with you!). This is an 8 unit property with a chance to add an additional unit making in 9 units, pending a zoning exception that I will be working on. In the big building there is 6 units currently and there is another duplex in the back. My goal was to rehab the property, which includes updating the the units that are vacant as they turn over plus some of the exterior (big expense will be the roof which has been completed recently as you can see from the pictures), raise rents and then refinance, like a BRRRR. A lot of the bones, boilers, water heats, plumbing, electrical was already in good condition so that was a huge plus! When I purchased the property I immediately raised the rents closer to market rent for the tenants that were still there and put them on a new year lease with my companies rules/process. This increased the NOI of the property substantially, immediately raising the value, and also immediately allowing me to break even on payments as the work continued. Additionally with the vacant units being repaired, I can pull in max market rents which in turn is increasing the NOI substantially as well. It is already technically cash flowing a bit with 2 units left to go, but I put it right back into the property as needed. The initial gross rental income of this property when purchased was $34,200 and I will be able to increase it to about $105,000 once stabilized. The reason it was so low before was due to the prior seller's not increasing rents, very poor management, plus there were tenants not paying/being evicted. I had the prior seller finish eviction on 2 of the tenants, but the final tenant I took over the process as it wouldn't have been completed for months due to certain circumstances. I know people say "Always get the tenants evicted by the prior seller", well I would not have got this deal if I did that, plus I accounted for it in my sales price offering and numbers, so as long as the numbers work, deal with it. It has been a great learning experience also, especially being in a more tenant friendly state, it has taken 5 months to get close to completion of this eviction (Crazy I know, especially since these tenants have not paid for about 2 years!), but in the meantime I was working on all the other units and the building elsewhere. Once all the units are to market rent over time it will gross $120,000+. I am almost to the point of stabilization, once stabilized I will look to get a refinance to a conventional commercial loan, pay back my private lender plus interest on loan/rehab costs, and hopefully have money to be able to pull out myself. All in for my myself/private lender looks to be around $570,000 and with interest (plus points I am offering to give a little more back for being such a great lender [Treat good lenders great!]) around $600,000. The range that this property stabilized could be worth based on my analysis is around $800k-$900k, the higher the better obviously! Once refinanced, the property will cash flow around $2,250 a month after all mortgage costs, capex savings, repairs/maintenance savings, vacancy savings, taxes, water, etc. I will be the property manager for the time being, as I have a great system set up, which also helps increase cash flow a bit. Looking forward to finishing this property and getting a hold of the next one! Another property bought, rehabbed and soon to be held for $0 out of my pocket. It can be done!

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

I always try to look at properties where I can put none of my personal money into it and still obtain the property for a good price. This one was a fantastic opportunity and I had to take a chance!

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

I found this deal on Facebook in a real estate networking group. It was posted and I was the first one to really reach out the the owner, show quick interest and follow through with it. I negotiate with the owner directly, no real estate agents, and we came to an agreement after I showed the repairs that was needed and found out he just wanted to break even on the property and get rid of the headache. I would have liked to buy it for less, but the numbers still worked and we came to an agreement

How did you finance this deal?

Private lender I have used before.

How did you add value to the deal?

Increasing rents, renovating roof, renovating vacant units and getting market rents, managing the property effectively and correctly.

What was the outcome?

Almost finished, but looking to be a good BRRRR where I can not go on to the next project once refinanced!

Lessons learned? Challenges?

Tenant evictions are a pain in the BUTT! Especially in the Northeast (more liberal tenant friendly states). It is important to always vet your tenants correctly to try to avoid these issues as much as possible. The past seller's of this property did not do this, so I had to clean up two. If you are a problem solver though and can handle the process, you can get good deals and do well in real estate! Also communicate effectively with your GC's, I am lucky I have such great ones!