Victorian Tri-Plex in Downtown Colorado Springs

[Sarah Humbargar]

Investment Info:

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

Purchase price: $359,000
Cash invested: $75,000

This property was purchased as a long term buy and hold using the BRRR strategy. The house was built in 1901 and was originally used as a boarding house. It now consists of 3 units, all legally separated and metered. Two units contain 2 beds 1 bath, the third unit is a 2 story 3 bedroom 2 bathroom. Two units were vacant upon closing, so we are taking the first month to rehab the units, adding a laundry room to one of the units. The third unit will be updated when the existing tenant moves out.

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

We were looking to have a more scaleable impact with our dollars, moving from single family investments to small scale multifamily. Being able to phase the leases so that we never have 2 units empty at the same time was of interest to us, and this particular property as in really good shape with only minor improvements needed to get top dollar. The location is amazing and has great long term potential, being in an up and coming neighborhood walking distance to Downtown and many other amenities.

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

We found this deal on the MLS and beat out 5 offers with an over-ask offer in 24 hours. The property had a history of flooding, mitigated meth use, a zoning issue, and a widowed seller who didn't have the capacity to manage the asset. After inspection and understanding the goals for the seller, we were able to negotiate the price back down below list and still achieve some concessions, while also resolving the zoning issue with the city and confirming clean and safe conditions.

How did you finance this deal?

We used a commercial loan, having to switch lenders mid-way through the contract. We found that the zoning did not permit a tri-plex on the site and we were unable to get the city to issue a rebuilt letter for a tri-plex as was required by our earlier lender through a residential mortgage. The commercial loan terms ended up being even better than the residential terms, and they had no issues with the fact that if the house burned to the ground, we could still rebuild a duplex in its place.

How did you add value to the deal?

We bought at the right price, were able to get legal non-conformance for use as a tri-plex when only a duplex was permitted and will improve the property even more by painting, re-exposing original architecture, adding laundry facilities, and increasing the rents to market value.

What was the outcome?

We closed and started our updates. More outcomes to come!

Lessons learned? Challenges?

The "good deals" aren't typically easy deals. We have looked for the right property for more than a year, walked away from a lot of properties, and always stuck to buying at the right price and buying where you can add value for limited costs. This purchase required careful cultivation of a relationship with the seller so that we could have the flexibility needed to close a challenging property.

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

Integrity Bank and Trust saved the day, closing on a commercial loan in 2 weeks for us. Luckily e were already pre-qualified with them which helped to accelerate the process, but they were fantastic to work with.