Second House Hack Investment Property Performance Update

[Rylee Knox]

Investment Info:

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

Purchase price: $202,150
Cash invested: $26,936

In 2019, we purchased a 4-unit property in Farmingdale for $202,150. We invested $26,936.50 via down payments and closing costs to purchase the property, and it cash flowed $7,130 annually at the time of purchase, giving us a 26% Cash on Cash Return. Just one year later, in 2020, we did an 80% LTV cash out refinance for $224,000 and pulled out $48,745.66 of equity in cash that we used to continue to build our real estate portfolio.

Analysis updated 2/17/2023.

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

We loved that the heat and electricity were independently metered and could be billed back to the tenants. This is also a purpose built 4 unit which attracted us to the deal as many buildings in our market were converted from single family to multifamily and purpose built multifamily tends to perform better in my experience.

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

I found this deal by sending Facebook messages to every landlord who was advertising an apartment for rent in my target market and asking them if they would like to sell. The seller of this property responded that she was interested in selling, but that she was going to list the property, but she agreed to give me a 24 hour head start. The property was listed for $189,500, and we used escalation addendum, offering to pay $5,000 more than the next highest offer with a max price of $215,000.

How did you finance this deal?

We used an 11% down owner occupied loan from a local lender with a 30 year amortization and a fixed 4.5% interest rate. We later did a cash out refinance with an 80% LTV loan with a 20 year amortization and a 4.25% interest rate fixed for 5 years.

How did you add value to the deal?

We converted to natural gas, installing 3 new heating units. We painted the exterior of the building and brought rents up to market rates.

What was the outcome?

This asset is now completely de-risked for us and our cash-on-cash returns are infinite because we do not have any capitol left in this deal. Today, just 3.5 years later, this property is worth about $375,000 and it cashflows $26,836 annually. If we were to sell this property today, our net cash flow on this deal would be over $ $279,000 and our Internal Rate of Return on this deal would be 294%. Our initial investment of $26,936.50 has been returned to us over 12 times in the first 3.5 years.

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

Katie Vickers at Kennebec Savings Bank