How I Doubled the Value of my 8-Plex in 8 months!

[Guillaume D.]

Hey guys,

So here's another success story from me. 

Last September, my partner and me bought an 8-plex for 660k with 52k in annual gross revenue. Market value for the property was appraised at 905k and economic value (based on revenue and expenses as calculated by the bank) was appraised at 805k. In Canada, banks always loan based on the lowest of all three values (price of purchase, economic value or market value). So, in this case, even though we were making 245k in instant equity when buying the property (905k market value - 660k price of purchase), the bank only financed 75% of the purchase price which equates to a 495k loan. To complete the purchase, we used our investors' money to front the 165k cash down needed to buy the property. Thus, none of our own money was invested in the deal.

We knew this property had huge potential for increased revenues. Average rent was 565$/month for 2-bedroom apartments and the average rent for this area was around 800$/month for similar apartments. 

We had one vacant unit, and we quickly made WIN-WIN arrangements with 4 other tenants so they would find themselves another apartment to move to.  As a result, we were able to completely renovate 5 out of 8 units within a short amount of time. We put a total of 150k in renovations and we hired our usual teams to do the work. We put an average of 25k in each apartment plus 25k on the overall building. 

Eight months later, the 5 units were finished and rented out to new tenants between 950$ and 1100$/month. We increased the annual gross revenue from 52k, when we originally purchased, to 84k! We had the building appraised once again by the bank and here are the results.

Original market value was 905k . New market value is 1 307 000$

Original economic value was 805k. New economic value is 1 156 000$

Bank refinanced 75% of 1 156 000$ so mortgage went up to 867k which means we got a cheque of 382k from the bank (867k new mortgage value - 495k original loan - 10k capitalisation). 

Now, here is the sweet part. We received a cheque of 382k, we gave our investors their money back for the cash down (165k + 15k closing costs), as well as 150k for renovations, and we were left with 52k in our pockets.

In conclusion, we bought an 8-plex without using any of our own money, paid back our investors within 8 months, got 52k back in our pockets and we have an almost completely renovated (5 out of 8 units) 8-plex!

Gotta love real estate now :)! Good luck in all of your transactions guys. 

*I have omitted a bunch of specific details because I didn't want to make the post too long, but don't hesitate to ask if you have any question.

Cheers,

G

[Guillaume D.]

@Justin Kill Some of them yes, but for most, I allowed them to not pay rent for a couple of months in order to be able to find a new place to live and to save some money in the meantime. One of my tenants actually ended up buying a house with the money they saved up. Plus, I often offer to pay for moving costs. This way, I get deductible expenses in my business for the moving costs, and whenever I don't get paid for rent, it lowers my "taxable" rental income. Way better than giving up cash money. Does that make sense?