How I found it - I found this bad boy through direct mail. It was a simple piece of yellow paper asking to buy an absentee landlord's house. No I did not pull an absentee list. And honestly this property wasn't even on my mailing list. It was another property I found while driving for dollars. I wrote the address down and sent the guy mail. It took 5 months of mailing this guy before he called (YOU HAVE TO STAY CONSISTENT WITH YOUR MAIL PEOPLE!!!). I ended up buying that piece of property but as I got that property under contract, I asked the most crucial question everyone needs to ask when they are talking to a seller: "Do you have anything else you would like to sell?" I cannot say that enough. Drill that question in your head and repeat it every time you talk to a new seller. By asking that question, he told me he had two duplexes over by Vanderbilt in Nashville he would consider selling because he wanted to retire. I ended up driving by and looking it up.

Vanderbilt was not an area of Nashville I understood or played in. I had not even driven over there at all. I had no idea what I was looking at.

Negotiations - So because I had no idea about the area, I really pressed the guy to give me a number on both duplexes. He did not disclose the rent (tells me that they were WAY under rented). I figured it was extremely cheap especially when he said 3 tenants had been there over 15 years. One tenant had been there for 21 years, WOW! He said last year he had them reappraised because the city had appraised them at a much higher tax valuation, and he had to appraise them to get his taxes lowered. He said the city appraised the land at an extremely high tax value, sky rocketing his property taxes to the point he was breaking even on his rent. That told me the land might be worth something, but the guy was valuing the deal as duplexes! I asked what that appraisal came in at. He said 240k a duplex. He then said that he wanted 260k a duplex. I came to him and said I will give you 220k per duplex, and we eventually settled on 240k (what they appraised for), so that is 480,000 purchase price.

I still at this point have no idea what I am doing. The land was undersized. I don't know the area. So I asked the seller for a 90 day close to close with financing and because I had to grandfather in the duplexes. The zoning was Rs7.5, meaning a single family home zoning, but you can grandfather in duplexes if they are existing and meet the meter test (have not been shut off for any period of 30 consecutive months). He agreed. You might ask "Why Devan would you put something under contract for almost half a million dollars that you don't even know what you are looking at?" You're correct. However, the one thing I saw that didn't make sense to me was this. I was searching on the CRS system (tax system) and noticed that duplexes in the area were selling for 450,000 a duplex. I thought that was interesting because from a cash flow standpoint that makes no sense. I called each one of those listing and selling agents and asked why the heck these people were paying that much. Every single one of them said "It's for the land value, not the duplex." I thought that was nuts but whatever let's go with it. As Richard Branson would say "When opportunity knocks, say yes and figure it out later."

First 15 days under contract - I figured, let's throw these babies on the MLS for 900k total (450 a duplex) and see what happens. Within 24 hours I had a full price offer of 900k. I couldn't believe it. I was in shock that I found a deal like this.

Numbers on a wholetail -
- 900,000 sale
- - 60,000 commissions and closing
- - 480,000 purchase
- - 27,000 (3 points of transactional funding)
- - 2,500 additional closing costs to double close
- = 330,500 profit
- = 198,300 after tax

I would have double closed, and I did not have that kind of cash to close, so that is where the points come in. I might have gotten better rates, but I only asked 2 lenders.

So what was the outcome? I declined the offer and here are the numbers as to why

Numbers on the Build, Sell 2, Keep 2, and refinance

The two we are selling
- Sale price - 1,7000,000
- - 119,000 (7% closing and commissions)
- - 10,000 holding
  - It was funded in cash so there is no interest payments just taxes and insurance
- - 700,000 build costs (350,000 per home all in)
- - 250,000 purchase and closing
- = 621,000 profit
  - I get 15% of the profit = 93,150
  - I also get 3% commission = 51,000
  - My cut = 144,150 on the two we are selling
- I know, I know, you're thinking Devan why would you only get 15% on a deal like that. It's because I get 100% of the 2 I am keeping, so I got 65% of the deal plus commission
The 2 I am keeping
- Appraised value - 1,700,000
- - 250,000 purchase
- - 55,000 holding (10% interest on the purchase price and working capital I asked for of 40k plus bank interest, plus taxes, plus insurance)
- - 700,000 build costs all in
- = 695,000 in equity
- Bank will lend me 90% of the LTV of 1,700,000

I am paying myself 53,000 a year to live. You cannot beat that. So what is the real reason I chose not to sell. Well, it's pretty simple. The cash out refinance is tax free. I can put half a million in my bank and our greedy government gets ZERO. I can also pay myself to live as I live in the other unit in a fantastic location of Nashville. And if I don't cash flow that much or even break even, I don't even care because someone else is paying down my note. I would have to lose money for a lot of months to run out of the banks money. By not roasting the golden goose and by slow cooking it, I will pay myself so much more in the long run. My plan is to either keep these forever or sell one after living in it 2 of the past 5 years and collecting 250k tax free. I can ride this one for a long time, and the exit strategies are endless.

Moral of this deal - Always ask someone if they have anything else they want to sell :)

What will I do with the 500,000? I might go buy more apartments, or I might lend the money out at 15% and 3 points myself creating even more cash flow. I don't really know, but I will figure that part out later! Thanks for reading!

P.S. I would encourage other investors to buy a piece of land and build 2 units on it, live in one side and rent the other one out

P.S.S My goal is to beat this deal somehow!!

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Buy, Build, Rent, Refinance (BRRR Squared)

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