My first large rental building buy and what I liked about it

[Andrew Jennings Freerks]

Investment Info:

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

Purchase price: $1,250,000
Cash invested: $200,000

238-240 Sheridan Avenue is a 2 unit townhouse, and a 10 unit historic brick warehouse (converted to rental apartments) located just two block from the New York State Capital. We purchased the properties for $1.25M as we saw the rents were far below market, and the purchase also comes with 6 developable lots, which we plan to build on in the coming year.

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

Larger property transaction and management is very similar to a smaller multi family but the upside is higher. We felt we have mastered the smaller multi family space, so wanted a new challenge.

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

Through a broker friend of ours in Albany. The listing was on the market, so we contacted the agent and represented ourselves. During the negotiations we made sure to use time on our side to get a lower price. We eventually negotiated a price, where the seller regretted selling.

How did you finance this deal?

We refinanced a 4 unit BRRR we were completing a few blocks away.

How did you add value to the deal?

Initially, we just increased the rents to market or slightly below. Now we are renting out auxiliary spaces that were left vacant, and adding bedrooms/ dividing large apartments into smaller but more numerous units. Later we will develop the 6 adjacent lots adding at least another 18 units, but we are hoping since the lots are all contiguous we might be able to upzone the area and build 30+ units.

What was the outcome?

Still on going, but so far we have increased the monthly rent roll from $6K to $16K, and I think we will top out at $18K before we start building on the lots. Expenses have pretty much stayed the same.

Lessons learned? Challenges?

Dealing with long term tenants when it comes time to renegotiate their lease, and after that getting permission from the city to upzone the lots.