My first Deal: 4-plex with remodel

[Christian Becker]

Investment Info:

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

Purchase price: $124,000
Cash invested: $36,000

4-plex purchased with 2 upper units (3-1 and 1-1) currently rented.
Rents $650, $500 and projected $550 and $500.
Purchase price $124,000: $12,400. Additional $23,600 estimated in repairs. Total Cash: $36,000
1% Rule = 1.49%
Monthly rents: $2,200
Monthly exp:
Taxes $220
Ins $120
Lawn $42 (5 months @$100)
Util $200
Mortg $646
Maint $154 (7%)
Mgr fees $176 (8%)
Vacan $110 (5%)
Cash flow: $532

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

Need to get going. Want to buy and hold multiplex rental units for cash flow and appreciation, but mostly cash-flow. Hoping to add 10 properties in next few years.

Plan: Reinvest all cash-flow to pay off note. Estimate for loan payoff with this strategy: 9.75 years with above numbers, all inflation adjusted 2% per year and annual rent growth and property appreciation 2%.
Cap Rate 9.6%
Cash on Cash 17.74%
GRM 5.59

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

MLS. Went and looked at several places. Got lucky. Found this one. Was advertised as a triplex. Ran the numbers, using 1% rule to start. Looked, saw, offered. Smiling..well almost.

How did you finance this deal?

Local credit union in-house lending program.
10% down with credit union loan (30 year amortized, but 15 year balloon)
(5.38%, 30 year)

How did you add value to the deal?

Two basement units needing updating/remodeling (2-1 and 1-1).
Was originally advertised as a 3-plex because the 4th unit was completely trashed/ripped out and looked terrible.

What was the outcome?

Will see. Numbers look good enough if can get the work done and rented out.

Lessons learned? Challenges?

Originally hired rental management company that from neighboring town (where we live) instead of in town and didn't have contacts or experience in town. Lost 5 months of rent for 3rd basement unit. Also didn't advise well on what was need to remodel. Finally changed to local company that has large experience (600 doors under management in town) and contacts. Found our own handyman to do remodel work which is high quality and affordable. No longer through RM company.