Crazy Cash Flow in Columbia, SC

[Mac Shelton]

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $223,500
Cash invested: $32,612

This was my first true investment property (i.e., that I didn't initally buy to live in). I was very pleased with how my house hack had gone after only a few months and was eager to find the next deal. I spent about 18 months listening to BiggerPockets, attending REIA meetings, reading REI books, and making offers all over the southeast before stumbling across a 3BR house in Columbia listed for $130k that I knew from Apartments.com was renting for $1,700/mo. This didn't make sense to me as I had literally never seen that kind of cash flow on a listed property, so I called the broker.

He told me a long story about how most of these houses had been purchased by parents of nearby USC students in 2008-2010 when the development was completed. Most of them had paid 10-20% more than they were currenlty selling for 10 years later. The main reason for the disconnect between value and income was that appraisers only used comps from within the development, which essentially meant that unless buyers were willing to overequitize their purchase, it was very difficult for the appraised values to keep up with the 4-6% rent growth the development had seen in recent years.

He told me that while the 3BR I was looking at would definitely cash flow, the real disconnect was on the 5BRs. I told him to call me the next time he got a lead on a 5BR, and I am so grateful that he did. I bought my first 5BR at The Retreat Columbia that summer, and have since bought 2 more 5 BRs and co-led a syndicate that bought 13 more units over the past year (2, 3, 4, and 5BRs, plus a model unit that we lease to the HOA/PM).

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

Unbelievable cash flow from a turnkey deal - my average cost, net of seller credits, on the 3 5BRs I currenlty own at The Retreat is $225,473, and at the time of purchase the average rents were ~$3,200/mo.

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

Met a great broker after I called him about a different listing and he recommended I wait for a 5BR if i was trying to maximize CoC returns. He called me a few months later with a 5BR and I had a contract signed a day later.

How did you finance this deal?

I used bank debt for 80% of the "official" purchase price, maxed out the seller credits to net out to the price we had initially agreed on ($219k), and used USAA's career starter loan program for new Army officers for ~8% of additional LTV on the HUD price (at only 2.99% interest!).

Overall, my true equity check was just under 15% of the net purchase price after seller and broker credits.

How did you add value to the deal?

I didn't do anything to the property, but when the appraisal initially came back too low (as the broker and I had expected), I presented a convincing analysis to the appraiser as to why it was ridiculous to value this property solely on comps when it was one of only 2-3 5BR units to sell in the past 2 years and it generated ~$20k/yr of NOI. He ultimatley agreed and adjusted the appraised value upwards.

This also made a big difference in the appraisals on my next two Retreat deals.

What was the outcome?

I ended up buying 2 more just like it over the following 2 years and ultimately completed my first multifamily syndication as a direct result of buying this first house at the Retreat in June 2019.

Lessons learned? Challenges?

The most rewarding part of REI for me, both financially and in terms of enjoyment, have been the relationships that have arisen out of it. The broker that sold me that first deal gave my business partner and I the chance to buy an off-market portfolio deal (our first syndication) because he had known me for years and seen both of us do what we said we would on multiple closings.

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

Whit Suber - Home Shop Realty