Goal is 2 purchases per year

[Alan Huang]

Investment Info:

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

Purchase price: $145,300
Cash invested: $10,000

3 unit multi family house. Undermarket rent and looks old and outdated. Purchased it and raised rent immediately to market rent. Redid the whole roof by myself with hammer and nail. One tenant had a lawyer reached out to me to tell me that I can't raise rent without giving proper 90 day notice. I quickly learned the laws and regulations. I spent time talking to this on tenant and she decided to move out. When she moved out, she gave me an extra month of rent because she felt like I was doing the right thing to better the units for future tenants.

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

I laid out my goals which is to have 51 doors by 2030. In order to achieve that, I will need to acquire 17 buildings of 3-unit multifamily at the rate of 2 buildings per year. I was looking for anything that Cash flows following David Greene's advice.

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

Found this on Zillow for 175k. I called the listing agent and threw a lowball offer of 130k. They called back and said seller wants 145k. We settled eventually with 143k with seller concession for purchase price of 145k

How did you finance this deal?

Primary residence 15% down. I called 3 different banks and everyone tells me I need 25% down for conventional loan on a 3 unit multifamily. I kept asking if there is any other way to do less money down even though the mortgage lender already told me no. Finally one credit union lender found a way to do 15% down primary residence. I was taken by surprise. Even through my research, everywhere says 25% for a 3-4 unit multi family conventional loan. This one was very lucky.

How did you add value to the deal?

Raised rent and got 2 of the 3 tenants to accept them. The 3rd tenant moved out, I took a non load-bearing wall down to create more space in the kitchen and turned it into a studio instead of a 1 bedroom apartment. Painted the entire place, added multiple lights, insulation in the ceiling and linoleum flooring. I convinced a friend of mine from 3 hours away to relocate and move into this apartment when my contractor is still finishing up the apartment kitchen.

What was the outcome?

Super strong cash flow. Neighbors really appreciate the work I put in to manage this place myself as the previous owner never did anything to the unit.

Lessons learned? Challenges?

The challenge was the one tenant got lawyer involved and refused the rent raise. The lesson learned is that if you work hard and go above and beyond, everyone (including tenants, neighbors, contractors) recognize it and will be willing to work with you. In this property the tenant that refused the rent raise gave me an extra month of rent when she moved out because she wanted to be part of the team in making this a better place to live for future tenant.