From 0 to 11 Units in 7 Months

[Jeff F.]

3 months ago, I had just closed on the 4 plex that I wrote about here. 

To make a long story short, I was waiting on a refi for the downpayment funds, and when I was unable to secure that due to unrelated reasons, I was forced to get creative to get the deal done. I ended up switching lenders 3 months into the process, but was able to get what I wanted the entire time - into a 4 unit building with an FHA loan, at 3.5% down.

My refi has since finished processing, and I have found another deal (which wouldnt be possible had I sunk all my cash into the deal I closed in late may). Since I knew I had more cash with which to invest, I kept analyzing deals in my town, and kept looking.

About 2 weeks ago, what would nicely be called a diamond in the rough came on the market and I went and looked at it. It was absolutely beat up beyond belief, but thanks to everything i've seen & read here on BP, I knew there was potential. Some are afraid, but as a friend I was showing pictures to this weekend said "Oh man that's great - easy way to force appreciation!" Im looking forward to this project.

It's a 7 unit building, 2 blocks from the state capitol and main  government offices, and about a 10 minute walk (If you're doddling) to downtown area of cheyenne. The house was built in 1916, and has a roof that's ~5 years old, and recently had all gas plumbing, meters & supply replaced. 

Currently, 5 of the 7 units are rented. There are 5 1 beds, 1 2 bed and one studio.

I thought long and hard, and went back to look a second time, and decided to put in an offer. Here are the deal stats:

Units: 7

Purchase Price: 165,000

(All Numbers Monthly)

Gross rents (when full): 3,690

Gross rents (as is): 2,760

Mortgage: ~735.00

Taxes: 146.57

Insurance: 150

Water/Sewer/Garbage: 375

Electricity: 500

Vacancy (10%) 369

PM (10%) 369

CapEx (7%) 258

Maintenance (5%) 184

Total Expenses: 1,983

Expenses + Debt Service: 2,717

Cash Flow: 972.33

NOI: 1707

Cap Rate: 12.41%

Cash-on-Cash: 35.38%

Rent to Price: 2.24% 

I got financing from Wells fargo and in my opinion the terms are great. 20% down, 15 year loan amortized over 25 years with a balloon at the 15 year mark. Have not locked rate yet, but looking at 4.5%.

The units are in VERY rough shape, and due to this, are rented under market value.  The plan here is to collect the cash flow over the winter, then start upgrading the landscaping and the currently 2 empty units in the spring, after I've built up a nice pile of cash from the rents here. Each unit will get rehabbed as it becomes vacant, and in my estimation rents can be raised to ~4100/mo total. Once rents have been raised, will refi and move on to the next.