FIRST DEAL: Seller Financed 6-plex in Ogden, UT

[Jaiden Olsen]

Investment Info:

Large multi-family (5+ units) buy & hold investment.

Purchase price: $525,000
Cash invested: $10,500

This is a seller financed 6-plex in downtown Ogden. Property has very little deferred maintenance. The seller wanted $50k down asking $525k. At that price, the highest offer I could write was $425,000 with $50k down. The offer I submitted was at full asking price with 2% down ($10.5k). When I was deciding how to write my offer I based it on me breaking even. Comps came back at $600k. Therefore, breaking even made sense for me. I offered $525k with 2% down at 4.99% interest only, and he accepted.

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

These were my numbers:
Purchase Price: $525,000
Down payment: $10,500
Interest rate: 4.99%
Monthly Payment: $2,139.46
Term: 60 months, with a $5,000 option to extend another 5 years.
Earnest Money: $500
Gross Rents: $3,450 (this is what the seller told me)
Vacancy: 4%
Property Management: 8%
Repairs/Maintenance, Cap Ex: 8%
Utilities: $200/month
Cash-flow: $0/month

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

I met the seller at a Northern Utah Real Estate Investors Association (NUREIA) luncheon. I learned that he and his wife were leaving on an LDS mission in March 2019 and that he was looking to step away from a few of properties but wanted to maintain cashflow. Talk about right place right time. Seller financing was a fantastic option for the seller. The seller told me that he would like to sell for $525,000 with $50k down.

How did you finance this deal?

I borrowed the down payment $10.5k from my HELOC on my personal residence. The seller carried back the rest.

How did you add value to the deal?

Rents were low. Units are made up of (3) 1bed/1bath units (rents between $450-$525), (2) 3bed/1.5bath units (rents between $595 and $650), and (1) 2bed/1bath unit (rent at $550). $3450/month gross. We immediately raised rents to $3800/month. Here is where we are at now:

Debt Service: $25,673.55
Gross Operating Income (4% vacancy): $43,776
Total Operating Expenses (Property Taxes, Insurance, 8% PM, 20% Repairs/Maintenance/CapEx): $17,716.44
Annual Cash-flow: $386.01

What was the outcome?

In the next 5 years, my goal is to get rents up to $5k/month. With the interest rate we are getting from the seller, I don't know that I'm too excited to refinance, but if we can get the rents up to $5k/month, we ought to be able to sell for $750k-$800k. If things are going smoothly, and we want to renegotiate terms with the seller, we may exercise our option and keep this in place for another 5 years. We will have to see where things are at in 5 years.

Lessons learned? Challenges?

All-in-all. Not a cash cow right away, but I think we will be able to turn this property around quickly. Rents are still low. Rental comparison suggest we should be closer to $4800/month gross rents, so there is room to grow. Seller Financing is great, but there are challenges. Negotiating is hard. Sometimes it is okay to not cash-flow right away.

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

I had a ton of people that I talked to about this deal. I couldn't have done it without them and their advice!

Alan Walker
Jacob Howell
Cody Reeder
Dominik Delgado
Mike Lloyd