Investment Info:

Large multi-family (5+ units) buy & hold investment.

Purchase price: $2,300,000
Cash invested: $200,000

Single Owner 1970's build, Class B, 20 unit apartment complex with garages, acquired with 80% Seller Financing @ 4.19%, amortized for 30 years with a balloon at 5 years. Brought in $200k in private money @ 14% Fixed, interest only.

Strategy: Long Term Buy & Hold. There is some room for modest improvements to the units which will increase rent approximately 10%, and some expense reductions to be realized.

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

This was our (my wife and me) fourth and largest purchase. Each year we have at least DOUBLED the number of units we acquire. We have great-paying W2 jobs, but would not be able to acquire the 16+ units for this year with traditional financing and our own capital.

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

I follow multiple MLS aggregation sites and local brokers and had seen this deal originally come up in 2022. The seller's asking price was a bit steep, originally posted at 2.7MM. As rates continued to climb over the last year, the deal sat on the market. I initially contacted the broker and asked if the seller was/would consider seller financing for the right offer. He stated that the seller would, so I submitted an initial Letter of Intent through my RE Attorney.

How did you finance this deal?

After some back and forth, we settled at 80% Seller Financed at 4.19% Interest. This is amortized at 30 years, with a balloon to seller at five years. In second position I brought in two local private money lenders. They are debt-only, no equity, and will receive 14% fixed interest, paid quarterly, until we refinance.

How did you add value to the deal?

I met the seller where he wanted to be.

With the interest he will receive through the seller-financing, he will get nearly his original asking price by the time we close the primary note in five years. Over the next three years, we will invest approximately $4-5k to update the units to modern expectations, and be able to see a healthy rise in rent and reduction of time to fill. There will also be cost-cutting efforts through reduction of water usage and connecting to central fire alarms.

What was the outcome?

We just closed one week ago, so hard to say, but so far everything is looking good!

Lessons learned? Challenges?

The seller-financing aspect was interesting. Learned of the IRS AFR for interest rates, as well as being able to shape the note and mortgage for the first time, instead of a bank directing everything. Also working with local, personal lenders has been awesome. The two I am working with are small business owners with differing levels of experience in real estate, but wanted somewhere stable, yet profitable to put their earned income.

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

Tanner Anderson at Cutler Law Firm of Sioux Falls, SD represented me in this purchase. He had great communication and was open to my input while still guiding me within legal requirements and local market expectations.