Six Unit Apartments in small market

[Pete Harper]

Investment Info:

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

Purchase price: $340,000
Cash invested: $209,000

1031 exchange from Killeen 4-plex into a 6-unit apartments in Wortham. The Killeen market seemed to be topping out in rent growth and price appreciation so decided to cash out and buy an older 6-unit apartments. The new property has more room for growth. We used 1031 exchange to roll over all the profits and postpone taxes. This was an off-market deal that my wife found through networking. The previous owners had inherited the property and realized they were in over their heads managing the apartments.

Long term goal is buy and hold for cashflow. We plan on renovating each unit as they come available, increasing rents to market.

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

Our strategy is long term buy and hold investors looking for solid cash flow.

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

This was an off-market deal that my wife found through her personal network. We negotiated the deal ourselves without the need for an agent.

How did you finance this deal?

Portfolio loan through a local bank that we have a good relationship with. This is the fourth deal they have financed with us.

How did you add value to the deal?

The property has a lot of differed maintenance. The roof needed to be replaced immediately. We were able to negotiate a new roof into the deal. Rents are way below market. We plan to fix up each unit as they open up and raise rents to market.

What was the outcome?

Long term hold for cash flow.

Lessons learned? Challenges?

Be patient. During title search they discovered an old issue with title. Seller's deceased father had transferred title to his now deceased attorney. With neither party being alive it took a while to short out with heirs. Ultimately title was cleared but it took a while. Rather than giving up we postponed closing.

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

This is the 4th portfolio loan we have done with CBTx. They are a small regional bank willing to make commercial loans to small investors. Low closing costs, with minimal documentation and competitive rates.