My first TRUE buy and Hold Investment

[Luis Melendez]

My first multifamily investment

I’ve read tons of books and articles about real estate. Books on wholesaling properties to land flipping. But out of the all the strategies I’ve learned about, none has ever been more appealing to me than investing in apartment buildings. Now my favorite books were anything David Lindahl wrote. He talks about buying apartment buildings and everything he wrote about made sense. What an investment to be able to purchase a property, have your tenants pay down your mortgage, pay your taxes and insurance, pay any expenses and repairs needed on the property, pay property management, and on top of all that give you extra money every month to spend on what you like. Oh and not to mention I can file for depreciation on my taxes to help offset getting taxed on the cash flow!!!!!

Now I wholesaled properties but this story is about my first true buy and hold investment.

How I learned about this property in my hometown, was through a broker that I had previously dealt with in the past. He mentioned to me one night about a 3 family property available that was near the end of a short sale for 75k. So I went to take a look at it and the building was in good shape. It had bad tenants previously so there was trash everywhere, holes in the wall and just dirty all around but it wouldn’t be a huge project. The biggest expense was the front porch that needed to be rebuilt but, the roof was still in good shape, ad separate utilities and all the boilers and water heaters were newer, and the cabinets in kitchen on all three floors were in good shape. I estimated about $30k worth of repairs. So here were my initial numbers:

Purchase $75k

Repairs: $30k

Holding costs and misc. expenses: $10k

ARV: $180k

My strategy was to Buy, rehab, refinance and repeat aka BRRR strategy. So I used a hard money lender who charged 13% OUCH. It was interest only loan and I had to refinance within 6 months or I would get charged an extra 2% of the loan amount. But they covered 100% of construction cost and 80% of purchase price. I had no choice and the deal was good enough so I closed on April 14 2015. Now the day of closing I did a walk through and noticed a condemned notice on the door of the property but everything looked the same and my contractor said he will find out what this is about tomorrow, boy was that a big mistake. I should've dug deeper and found out why it was condemned. Come to find out, the day after closing, there was a pipe that burst in the basement and the basement flooded with water. So guess what happened to those newer boilers and water heaters!!!! TOAST!!!!!! So before I can have my contractors work in there I needed to have electrical panels inspected and electricity turned on, I needed to have gas company come out and pressure test gas lines and make sure that's ok and I needed to have town turn water on. Mind you I need to have this project done in 6 months!! SO I finally got through those hurdles thanks in part to the assistance of my contractor and his connections. So once I got the contractors working on the units I had a plumber go in the basement and fix all the copper pipes that burst. As he started to go upstairs he noticed the pipes behind the walls were leaking too. AT that time I had a plumbing company doing the work and they weren't cheap. LUCKILY I started looking at property managers and found a great one. I told him about my plumbing issues and he recommended me to a guy who literally lived 30 seconds away from me. BUT THANK GOD I found him because this guy was awesome and reasonable rates. At the end of the day he replaced all the piping with new pex piping on all three floors. With materials and labor it cost about $3k. The contractors had to rip the walls down which they weren't too happy about but it all worked out and I payed them extra for the labor. I replaced the water heaters as well and replaced 2 boilers because luckily 1 boiler still worked fine. As my contractors continued working, I started marketing the units for renters. I didn't want to pay the property manager a full month's rent, especially with the added expenses I occurred, so I did the leasing up but I had the property manager screen them and get all the paperwork situated. It took a lot of screening and showings but by august I had 1 tenant in first floor and 3rd floor section 8 tenant moving in on September 1st along with second floor tenant.

Now I started getting my refinance paperwork ready and handed over to a mortgage broker I had worked with in the past in mid-august. I wanted to cash out refinance the property and try to pull out about $40k. He got back to me and said he can only fund what’s owed NO CASH OUT REFINANCE. SO I did what any hungry real estate investor would do and find another broker and I’m glad I did because this guy I found had the connections and was able to get me my refinance and close it within 45 days. I needed to close by October 14th and actually closed on October 19th. And since I had such a great relationship with my hard money lender and they loved me, they waived any fees associated with closing after the 14th. So at the end of the day here are the numbers:

Purchase: $75k

Repairs $40k

Holding costs: $5k

My investment $20k (includes closing cost on purchase and any extra repairs)

Appraisal: $205k

Cash out refinance: 143,500

Check at closing $35k

Cash flow monthly (after all expenses including property manager and 10% vacancy factor): $1,000

So not only did I get all my money back plus $10k at closing, but I have a great cash flowing property with over $60k equity still in the property!!!!! Not bad for my first true buy and hold.

And that’s why I love investing in apartments!! Many lessons learned on this deal but ill be better prepared on my next purchase.