First Investment Property - 6 Units Headfirst!

[Brian Metz]

Investment Info:

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

Purchase price: $194,500
Cash invested: $58,750

This property consists of 6 units via 3 duplexes zoned commercially on a single lot, located in a lower-income area of Fayetteville.

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

There was a value-add opportunity. 2 of the 6 units were vacant while the previous owner was rehabbing them, and the other 4 had not been updated in some time, due to those tenants being in place for 7-10 years. Rents were below market by about 20%. I was able to initially come in with a cash offer, which helped facilitate, since it's a small commercial property and the 2 vacant units deemed it as distressed to many banks.

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

I found it on Realtor.com and used a traditional real estate agent.

How did you finance this deal?

Initially cash, and then I performed a cash-out refinance.

How did you add value to the deal?

Post-purchase the appraisal with current cap rates came back at $230,000. Raising rents to market value and renovating the units as those tenants move out has facilitated an NOI increase, further increasing the value to ~$250,000.

What was the outcome?

I still own it, and it is cash flowing nicely and I've created additional equity through forced appreciation.

Lessons learned? Challenges?

Being a small commercial property, financing was difficult so I elected to pursue the initial cash option. 2 of 6 units vacant labels the property as distressed to many banks, as I don't have the economy of scale working in my favor. Delayed financing is very different than a traditional residential delayed financing deal. I didn't wait the year of seasoning the large banks I was working with require, so they were only able to lend at the purchase price, not the appraisal.

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

I used a residential real estate agent when I should have been working with a commercial broker who understands the process better - don't do what I did!