My first big deal! A 12 unit at 24 years old

[Melissa Murphy]

Investment Info:

Large multi-family (5+ units) commercial investment investment in Spokane.

Purchase price: $625,000
Cash invested: $125,000
Sale price: $614,720

I was hooked on real estate after turning my first condo into a rental and getting $250 dollars a month in positive cash flow. I became a real estate agent in 9/05, and one of my first deals was my own. It wasn't a small deal, it was a 12 unit apartment complex for $625,000. I think my broker thought I was nuts at 24 years old.

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

Becoming a real estate agent, I wanted to learn everything I could about investing, and become a more seasoned investor than just a few condos and owning a home, seemed like the fastest way to learn.

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

I found the deal on the MLS, and with 4 other offers on the table, as a new real estate agent, I waived my commission (with my brokers' approval) in order to sweeten the deal by 3% without having to worry about appraisal issues.

How did you finance this deal?

I knew that the larger deals are not as dependent on the strength of the borrower, but on the strength of the asset and cash flow, I quickly compiled all the data on the property and marched into several bankers offices. I was perplexed at how many "no's" I received. The cash flow on the units showed under market and the expenses ran too high. I finally got a yes from a local credit union and closed quickly.

How did you add value to the deal?

After closing on the unit, I knew the units were worn and dated since the building was built in 1978. Upon each unit vacating, we would spruce up the units, add new flooring and carpet, clean up and bathrooms, and finally upgraded the doorways, hallways, and common area. One setback I didn't expect was the fire! In late 2008, we received a call from our property manager at the time, that the building had caught on fire. One of the tenants was on oxygen and smoking at the same time.

What was the outcome?

After working with the insurance agent after the fire, we have the place back in order. Vacancies were higher than I expected, and I kept getting the run around from the local property manager I hired. They couldn't give me any reason why my units weren't renting, such as condition or price, just saying they were hard to rent. So, I fired my property management company and hired a longtime housekeeper, and she very quickly had the place up to full occupancy.

Lessons learned? Challenges?

After improving each unit, dealing with the fire, and finally getting the vacancy under control, it was time to say goodbye to this building. Buying a building this run down, needed so many constant improvements took more cash flow than I expected. Holding the unit for almost 10 years, I sold it for less than I paid for it and took a hit on the capital improvements. As my accountant and I always reference though, I had so many write-offs!!

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

Naturally, I cannot say more about our great property manager Julie Shenyar of One Property Management Group here in Spokane Washington. Without this building, I wouldn't have started a property management company. A fantastic partnership formed through this property and this experience. Additionally, buying this building at the age of 24 gave me the confidence I needed when working with other real estate investors with confidence.