Our First Complicated Investment

[Breanna Mason]

Hello everyone!

My husband and I are looking at our first complicated investment deal and need some advice. Let me break it down as best I can.

The multi-family we are looking at is located in a rural town near a military base. We have been looking at this property for several years actually. It originally listed 4 years ago for $225,000. Looking at the county records, it seems like it was foreclosed on and somebody bought it for $140,000 - put on the market again for $225,000; 2 years ago. It was bought for $170,000. This person is looking to flip it now for $240,000 and it has been sitting on the market for the past year - without doing anything to it. 

About the seller - The seller seems like another wholesaler. Using county records we looked them up on LinkedIn and they are a financial manager for a major bank in the area - so maybe open for a deal or a coffee chat? 

About the property - It is a 9 unit complex (1 bedroom per unit - 1 unit also has an office) that used to be an old mansion. Looking at the pictures, it looks like this place was completely gutted - the pictures show new electrical, plumbing, windows, and looks like it was in the middle of a remodel when they stopped halfway through. It would need drywall, floors, appliances, paint, and lighting based on what we see from the pictures - obviously we plan to go see this property with our contractors. Seller states that plans are included with the sell, however, looking at county records we do not know if these plans have been submitted or if that is why they stopped renovating halfway through because plans weren't approved (we have already reached out to the agent to answer some of the questions we have - will update when we hear back)

About the area - Units in the area are very outdated; it's an old rural town. There is a huge need for housing in the area because the military base is expanding. 1 Bedroom units rent for $900-$1000 and there are very limited options. $900/month x9 units = $8,100/month - OPEX/CAPEX (which we currently do not know what that is) - we have never done a multi-family before so we are unsure how to calculate. Looking at multi-families in the area, fourplex's are going for $800,000 and a 13 unit multi-duplex's (?) (the seller is selling 3 duplex's for $815,000). The property has to be at least worth $800,000 after renovations - do not see an issue in appraisal after renovations are done, unless we are missing a huge key to this.

Our Plan - We have a contractor who we have worked with before. We haven't priced out the renovations, however, our contractors are on board. We know we don't have to pay the contractors until after work is completed - they are part of the deal. We would like to approach the seller to see if they are willing to sell us the property - the terms of the deal would be that we have a 6 month close, seller authorizes a quitclam - the reason for the quitclaim deed is so that we are authorized to refinance the property when we are done with construction to pay seller and contractor. The contractor would finish the renovations, including adding appliances and landscaping on the .33 acre lot - Units would be move in ready. Contractor agrees they will be paid with cash out refinance. OUR GOAL is to rent this out to soldiers in the area to gain cashflow - we are both veterans and we have established connections with housing on base. This is our refinance plan - $800,000 (ARV) we would need to pay seller back $250,000 and we would need to pay contractor, estimated $200,000 to bring the cash out to $450,000 - a little over 50% of estimated appraised value - The mortgage then would be $450,000 with current rates on a 30yr fixed (BP online calculator) the payments would be ~$3,070/month. As stated above, we would rent out each room for $900/month x9 units = $8,100/month giving a cashflow of $5,030 not including OPEX/CAPEX.

Questions - Are we over are head here? lol. We understand there are a lot of variables in this deal, but this just seems to good to be true if we can get seller on board.

 Are we missing anything that we have not mentioned in this? 

Should we offer seller a premium for these concessions? The numbers, it seems, allow for wiggle room in the asking price just in case seller wants to be paid a premium. 

Do we need an attorney?

Thank you for your time in reading this as we sincerely appreciate it.