4 Unit building in Hamilton Ohio

[James Back]

Investment Info:

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

Purchase price: $295,000

4 Unit apartment building in Hamilton Ohio. Previous owner owned since built brand new in 1984. I used batchleads to do some prospecting in 2020 using a text message campaign to "tired" multi unit owners in and around Hamilton. The campaign wasn't successful at all, but i did start a relationship with one of the owners. It turned out he was a unique investor that did a lot of note investing and a lot of creative financing and was starting to try his hand at modular home development. We met for coffee and just chatted all things real estate. We didn't talk about the 4 unit much, just pushed that interest aside and tried to learn from him. Over the next 3 years we met up at least once per quarter just to talk real estate. He reached out in May 2023 wanting to meeting to discuss the possibility of selling his 4 unit. We reached an agreement on price and did an all cash deal at 295k. Two of the units had been "Updated", but this was the typical tired landloard update which included a poor cabinet paint job, the cheapest flooring, and single color all flat paint everywhere. When purchased all of the units were occupied but not without their issues that were undisclosed. One unit was at $650, and the renter has been there for 28 years, but never has asked for any maintenance, so nothing in the unit has been updated for 28 years. The next unit was 1 year into a two year lease at $900 per month but allowed to have pets, and turned out to have three rabbits, one dog, and three cats, all in 1000 square feet. The couple ended up getting divorced in November and wanted to break the lease. I allowed them too because the pets were a nuisance. It took $2500 to get the unit back into rentable condition, but was able to re rent it at $1000 per month. The third unit had tenants in it that have been there for 3 years with no lease at $700/month. The previous landlord disclosed their rent to me at $750, but i had no proof of this so allowed the tenants to continue 2023 at $700, but gave them a 30 days notice of rent increase beginning January 2024. The fourth unit was a disaster. It was the most updated, but the tenants in it had only been there for 2 months when we purchased it. The day after closing i went and introduced myself to everyone, but the tenants in this unit weren't there. Turns out that they didn't have enough money to put down the deposit for the utilities to go into their name when the old owner took them out of his. This should have been red flag number 1 but i gave them the benefit of the doubt and turned the utilities back on for them in my name. The first of the month came and i got a sob story about how the boyfriend was in jail for a probation violation, red flag number two. Being their landlord for less than two weeks i again gave them the benefit of the doubt i gave them a two week extension which proved to not be effective. I filed for eviction, and two weeks later had the apartment emptied but only by force from the bailiff. The unit took three weeks and $3400 to turn over. I was able to get it filled with tenants rented out at $1000 per month.

In the end this deal taught me a lot of lessons, but the value of the property in this current market is right around $365k but not without it's headaches. This is still a good long term investment.

Financing: The seller needed to close quickly with cash for a different business opportunity so i had to find hard money to close. The timing couldn't have worked out better, one of my contacts was looking for a place to invest some cash so he was eager to lend money. We agreed to an interest only monthly payment of $1400 with a 1 year baloon payment of $295k. This allowed us to cashflow a good amount of money each month while getting the property up to market rents.

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

I know the area well and know the most are "tired" landlords with low rents and lots of growth potential.

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

I made a connection prospecting in 2020 kept in touch and eventually they were ready to sell.

How did you finance this deal?

I found a hard money lender that financed the whole $295,000 with a balloon payment due after 12 months with interest only payment of $1400/month.

How did you add value to the deal?

Redid the front siding on the exterior and removed non paying renters and put in new renters at market rents.

What was the outcome?

The deal is currently cash flowing with tenants that pay on time.

Lessons learned? Challenges?

Get copies of all leases up front, have multiple exit plans, form relationships with other investors based on mutual interests and not focused on specific deals.