Finding out you bought 2 properties instead of 1

[Austin Carroll]

Investment Info:

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

Purchase price: $138,600
Cash invested: $62,000
Sale price: $235,000

This property was my first investment outside of my house hack. It was bought as a 3 unit, but we soon found out that it was 2 separate properties, a single family home and a duplex. I had just left my full time job to become a real estate agent, so I brought my best friend in as a partner on the deal, with him buying in 10% equity. We bought with conventional financing (fannie freddie 25% down loan) and put about $60,000 in upgrading the property. We then got a new appraisal and the appraisal value came in at $255,000, above the acutal market value, which was probably around $225,000. We were able to get 80% financing on our cash our refinance so we cashed out all of our cash in the deal and it made about $1,100, a month after all expenses. We were approached by a company to buy the property in December of 2018 and we knew some deferred maintenance was coming up so we decided to sell at $235,000.

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

I was interested in the high cashflow of Hagerstown relative to the price. Also to get a 3 unit for 138k was very attractive as I didn't have a ton of cash. This was also a huge property that had so much promise. I knew we could cash our refinance and still cashflow pretty heavy, which made the deal a no brainer for me.

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

The deal was listed on the MLS and we negotiated pretty heavily with the agent, throwing out a lowball offer (110k for list of 155k) and ended up settling on $138,600 with 2% seller subsidy.

How did you finance this deal?

We bought with fannie freddie financing, and refinanced with a community bank, essex community bank on a 20 year am 80% LTV product. They also used a desktop appraisal and essentially took our price suggestion.

How did you add value to the deal?

We added deal by doing some of the work ourselves, finishing an attic to get another bedroom, renting the garage separately, and generally fixing alot of deferred maintenance. We also gained value by separating the two properties and refinancing and selling them as if they were separate.

What was the outcome?

We ended up making roughly 30k on the deal and having 2 years of solid cashflow around $1,000 a month.

Lessons learned? Challenges?

Our biggest lesson learned was to vet the property management. We used one of my buddies who lived in DC and was starting a property management company in Hagerstown. He had little to no experience and it ended up being a bad situation when he did not properly vet one tenant, which caused another to leave, and lots of damage to the home.

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

We worked with affordable rental property management in Hagerstown and they were great.