Our First Units - Manchester, NH

[Nick Noon]

Good morning BP, I wanted to share our first deal(s) as a brand new company.

I recently started a partnership LLC with two people I have known my whole life. I have been on a real estate high ever since I bought my first live-in flip a year ago. My partners and I were able to pull some equity out of our homes and were able to scrap together $100k to start the business.

Through much discussion earlier this year, we finally decided that we were going to invest in Southern NH, mainly focusing on Manchester, NH.  We were looking at Lowell, MA at first, but 2 familys were typically in the $350k range and there was heavy competition.  We looked at the market in Manchester and there seemed to be some opportunity there. 

We decided to meet with a RE agent in Manchester that knew area fairly well. We explained to her from our very first meeting that we were RE investors and we were looking to buy distressed properties that we could add value to and refinance to pull our money back out. I have a lengthy construction background so the BRRRR strategy was our best bet. We were looking to use hard money to get them financed then to refinance out in 6 months. At one point in the conversation, I did mention that we could buy a turnkey property if owner financing was available. Now, I've never owner financed a property, but I sure read a lot about it...so I had enough information to be dangerous. This is when it got really exciting; the RE agent said she has a strong relationship with a RE investor that is looking to unload his portfolio (looking to retire soon) and that he has considered owner financing before.

We jumped right on this opportunity. The investor had 2 properties on the market right now and we asked her to immediately go see them. They were both 3-family properties in a C-class neighborhood. One of them was listed for $249,000 and the other was listed for $215,000. We looked at both properties and they both needed some work. The RE agent asked us how a owner finance deal would be structured. I have never done this, so I said the first thing that came to my mind from the knowledge I had from reading RE books. I told the RE agent that the seller would carry back 20% of the purchase price, for 5%APR, with a balloon payment in 5 years. Well wouldn't you know it, the seller accepted the terms! We made offers on both properties for $220,000 and $195,000 and they were accepted! Even though he had higher offers on the table.

Now the tricky part, how to finance them. I called my contact at my credit union and he gave me my first lump on the head. "We can't do that". Is what I was told. "We need 20% down from YOU". I went into panic mode, I just told the seller that we could make it happen and now I would was going to look like an idiot because I couldn't perform. I talked to my partner and he suggested I called our contact at another bank who does commercial loans. So mid-freakout I called my other contact and was told, "yea, no problem. We are a commercial loan, we can do whatever you want". WOW, what a change in mood that was. I asked him if I would need to put a certain amount down and he said that he didn't care because "We are in first position at 75% LTV, what do we care?" A couple days later I told him that the deal was accepted and to start underwriting. Now that the deal became real, the tune started to change. Now I was being told that it had to go to his boss and that he didn't know if it would get approved, and blah blah blah. I was pissed off to say the least. After a lot of negotiations, I was told that they would do the loan, but we needed to put down at least 10% and that the 3rd part note would have to match their terms, which was OH BY THE WAY, 20 year am. with 5 year fixed, prepayment penalty.....so we were a little mislead from the beginning. We took the lump on the head and said, we will still do the deal.

So now we are thinking everything is good, until we get more bad news.  The loan officer calls me again, so the deal was underwritten and approved, but we need to hold $5,000 in escrow per unit for lead paint abatement. 6 units x $5,000 = $30,000.  We couldn't believe how many times we kept getting these bumps in the road.  After some discussion, we had to agree to the escrow since this deal wouldn't be coming around again anytime soon.  Not to mention, the seller said if this deal goes good, we could look at the rest of his portfolio and be able to make offers off market.  So we went from basically $0 down to about $80,000 in a matter of 2 weeks. We stuck with it though and we are looking to close on both properties this Friday.

Our original goal was to get 2 units this year, and after a month of being a company we were now going to close on 6 units at only 10% down!  We have a goal of 500 units in 10 years so we are striving to hit our goal!

Here are the numbers:

Property #1:

Purchase price:  $220,000

D/P:  $22,000

Closing:  $4,000

Seller carryback:  $44,000

Rental Income (3 units):  $3,200/month

CapEx: $240

Vacancy:  $150

Repairs:  $170

Snow/Landscape:  $45

Utilities:  $100

Prop. Mgmt:  $300

Taxes:  $450

NOI: $20,940

Debt:  $15,680

Annual Cashflow:  $5,260

CoC ROI: 20.2%

Property #2:

Purchase price: $195,000

D/P: $19,500

Closing: $4,000

Seller carryback: $39,000

Rental Income (3 units): $3,000/month

CapEx: $240

Vacancy: $150

Repairs: $150

Snow/Landscape: $45

Utilities: $100

Prop. Mgmt: $300

Taxes: $394

NOI: $19,452

Debt: $13,231

Annual Cashflow: $6,221

CoC ROI: 26.4%