Small Multifamily Value Add Property

[Todd Thiermann]

Investment Info:

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

Purchase price: $325,000
Cash invested: $75,000

Four unit building with each unit at 715 sq. ft. All units are two bedroom, one bath, dining area, LVP flooring, off street parking, coin operated laundry and storage lockers in the basement.

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

This is a value add opportunity. The building is located in a quiet area with minimal traffic, close to Beloit Memorial Hospital, shopping, and restaurants. The rents are below market rent by $175/month. Current rents are $745.00 and could be $900.00-$920.00.

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

I found it on the MLS and monitored it daily. After a few weeks I emailed the property manager who listed the property to obtain more information. I scheduled a showing and realized why it wasn't selling. The property was listed too high based on the condition. The common areas were a mess, one unit was vacant, and the exterior wasn't maintained (over grown bushes, tall grass, weeds 4' tall, trash in the yard), and some damaged siding. I emailed a price and waited for their response.

How did you finance this deal?

Based on the current interest rates I opted for a 7 year arm at 5.25% with the intent to refinance into a 30 year when rates improve.

How did you add value to the deal?

I updated the vacant unit immediately (images provided) and increased the rent to $850.00 on a short term lease for the winter months. I plan to increase it again in spring. I will be updating each unit as they become available.

What was the outcome?

I had a few challenges initially, however, things are moving in the right direction and I should have 2 or 3 units updated with new tenants by early summer 2023. I have cleaned up and repaired the exterior of the building, common areas, and completely updated and rented the vacant unit since closing in October 2022.

Lessons learned? Challenges?

The biggest challenge I find with acquiring properties are some of the tenants you inherit. Some of the tenants are awesome to work with and others are difficult with everything. I find that it takes a few months to stabilize a property which usually ends up with one or more units turning over in a small multifamily.

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

Since I am a broker I handled the transaction. I work closely with One Community Bank in the area for 1-4 unit acquisitions.