Long-term buy and hold four-plex

[Brenda Maughan]

Investment Info:

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

Purchase price: $250,000
Cash invested: $250,000

The return on equity on the investment may not be great, but the investment has paid for itself many times over through the years we have owned it. Its market value has increased 4 fold in addition to the cash-on-cash returns. It has been the ultimate example of why real estate is such a fantastic investment vehicle.

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

Management was what made this such a good buy. This is a four-plex in a park with 44 other four-plexes with CC&Rs that require them all to be centrally managed by one manager. Fortunately, we have a fantastic manager who has been the key to the success of the entire property.

How did you finance this deal?

I paid cash because I could and because I had just recently been burned by too much leverage.

How did you add value to the deal?

Honestly, I just sat around and collected rents and waited for rents and market value to go up.

What was the outcome?

Fourfold increase in market value and rental rates tripled.

Lessons learned? Challenges?

When you own a property without a mortgage, it is really hard for it to hurt you financially. This is not true when the property is mortgaged and you get a big economic downturn. We have leveraged the equity over the years for fix and flips and it was a great source of capital.
When shopping for rental property, I find the manager first. My experience has been that a great property can be a dog if the manager is no good, and a dog property can turn out to be fantastic if the manager is great.

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

Jason Woodward owns Boise Property Management. He has been an invaluable resource. I can't imagine how a property manager could do a better job that what he has done for this property.