Small Town FSBO, Good Income...so far

[Matt Smith]

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Edna.

This For Sale By Owner sign caught my attention while passing through a town of about 5500. It was a duplex that was converted into a single family home. Since it had been on the market for a little while, the seller was looking to finance the sell. Sure, it needed some work, but with such a solid structure and in No Flood Zone, it was a no brainer for only a couple of thousand dollars down. Even more so with a partner willing to front half the down payments.

What made you interested in investing in this type of deal?

This deal is on a heavily traveled Texas State Highway. I always consider the commercial possibilities first, then I look for value add potential. This was a Two-Story duplex that was converted to a single family home. It wasn't quite right in terms of layout since it was originally an older upstairs garage apartment that had been enclosed at the bottom.

How did you find this deal and how did you negotiate it?

There was a FSBO Sign in the front with a little overgrowth in the grass. The sign had information on willingness to seller finance, so my partner called on it to work something out. Price was negotiated so that seller would get his price, and we would get it for less upfront. It had been on the market for a while. We paid a $2,000 down ($1k each) to acquire this property.

How did you finance this deal?

This deal was a seller finance for $2k down and $500/month. Sale Price was $53,000. So $2k down with a balance of $51,000 to be paid off at $500 month until paid in full with no balloon. We spent 2 months redoing flooring, painting, windows, and door. All in all about $4k-$5k in expenses before leasing out. Once complete, it leased in a week. When upstairs leased, it is expected to generate an additional $700-$800 income for total of $1500-$1650 gross income.

How did you add value to the deal?

This property was converted back into a duplex, which wasn't an easy decision before making the change. Sometimes if the layout doesn't feel right, or doesn't make sense, it might be best just to do a low cost conversion. After converting back into a duplex, it made a lot more sense. Instead of a weird 3/2 layout (1/1 down and 2/1 up) SFH, we now have a nice solid 1/1 down, and are working on repairs upstairs to get rent ready.

What was the outcome?

After $2k down, and another $4k-$5k in repairs downstairs, it was lease right away for very solid return. Going strong so far. Upstairs will require an additional $2k to get rent ready. Once minor repairs and improvements made, it is expected to rent for $700-$800/month. this price includes utilities and electric, since only one meter. Downstairs rents for $850. Currently at about break even with all expenses, debt service, and insurance and taxes, upstairs income will be pretty good.

Lessons learned? Challenges?

It wasn't easy to see that it should be converted back into a duplex. We were attempting to get rent ready on a budget, so our focus was to keep it as it was and do necessary upgrades/repairs as a SFH. The layout just didn't make sense, so in the end we spent more to convert back into duplex; however, we now have a solid duplex property that makes sense. Looking back, our first move should have been to convert as duplex instead of trying to make a terrible layout work as a SFH.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

This was a FSBO and we had the privilege of dealing with the seller directly.