Closed on a 6 unit yesterday

[Bill S.]

Stats on the property. 6 units in the hot Denver Colorado Market. Purchase price $515,000. I added $15,000 onto the price to pay myself a commission. I dropped the ball on financing and didn't start rounding up money soon enough. I was turned down by two banks and two other banks had too long a lead time for the appraisal by the time I got them involved. My mistake was that I started with a mortgage broker who is a friend who said he could get it done but he was not experienced enough in multifamily and didn't know enough to help me along. That was three months ago. I ended up having to use a hard money lender and used 3 other properties as collateral. When I closed I got the Sept rent and Security deposits as well as the commission check so I have some funds to do the fix up. Right now I'm all in at about $545,000. 

The place is rented section 8 except for 1 unit which has a tenant that pays their own way. Rents are less than $800 per month for 2 bedroom units and the landlord pays all the heat and the electric on two units. In that area there only one or two 2bd units renting for less than $1,200 per month in the adjacent area on Craig's List. Granted the place will need some sprucing up to get market rent but there is a lot of room there. It's the worst looking property in the area. It's a great location. 3 blocks to light rail. 5 blocks to Sloans Lake. One block to the Lakewood Gulch trail which takes you to downtown 2 miles away.

The plan is to refi in a year with conventional financing and take out the hard money loan. 

I found this property through my direct mail marketing.

The bonus with this property is, that the 6 units sit on 15,000 square feet of land. I am listing the land for sale at $1,000,000 today. It's probably a bit on the high side but if I don't sell then I'll have a nice rental property. If I sell then I'll have a nice chunk of change to figure out what to do with. I think I could reasonably fire sell the land for $650,000 if I wanted to. I was able to secure the hard money loan based on the cross collateralization of multiple units with equity.

Now comes the hard part. Making it all happen. I'll try and keep this post updated as I make progress.

Saturday I am going to the property to let the tenants know the new rules for paying rent. One tenant is 2 weeks behind. The current landlord makes several trips per month to the property to collect rent. That's all going to end one way or another. There is a bank about 4 blocks away that I am going to open an account at. They will be making their rent deposits there. The rest of the rent will come via Section 8 which I plan on phasing out over the next few months when the leases expire.

Planned upgrades include exterior gutter replacement. Repair/lifting of a sagging concrete porch and paint. Remove all of the unused TV dishes on the roof. There are at least 9 dishes on the roof for 6 units. Trim out some bad trees and spruce up the landscaping. Building fences for the units so they can have pets (I love pet fees and pet rent). Get rid of the garbage collection eye sore. Light rehab of each unit on turn-over to increase rents about $200 per month ($1,000 per month new rent). Back charge tenants for heat and hot water which should save about $300 per month on an average. Charge tenants a flat rate for water to recover those costs. The improvements will be paid for with the RE commission check and the extra cashflow from increased rents and lowered expenses.

There is some risk that the money I spend on fixing the place up will be wasted if I sell the land but at the same time I don't want to have only one plan for the property. If I sell for my asking price it's a home run and the money I spent on rehab will be gone but it is a relatively small percentage of the overall profit and it gives me options. I always like to have multiple options.