7 Family in Rough Shape bought with 10% down - Northern NH

[Jonathan Bombaci]

Investment Info:

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

Purchase price: $211,000
Cash invested: $23,818

7 family property walking distance to the downtown/main street area. Property was in rough shape due to neglected maintenance when we took it over.

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

I had a 3 family and 5 family in the area and wanted to add on a bigger property. This one was priced right and I new with some sweat equity it could be a great property.

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

Found on MLS - it was listed at $250,000 I offered $210,000 in the first week. They said no they had other interested buyers I told them to call me in a few weeks if they wanted to reconsidered. we ended up agreeing on a net purchase price of $215,000.

How did you finance this deal?

Commercial loan through a local credit union. They're loans are 80% LTV I structured the offer as $235,000 with $20,000 coming back to me at closing. Then with inspection negotiated another $4,000 to update the fire alarm system for a new price of $211,000 and I was able to use the $24,000 credit to offset my downpayment and closing costs. so only ended up with $23,000 into the property.

How did you add value to the deal?

Biggest problem was the heat situation. current owner was spending $12,000 a year on heat and rents were low. first thing we did was install 4 gas monitor heaters, 3 units already had them, separated the propane tanks and turned off the old undersized oil furnace. The We didn't raise rents $1 and increased the annual cashflow by $12,000 instantly. The total cost of the 4 gas furnaces with installation and service to the existing units was $7,900.

What was the outcome?

Still waiting to see but so far things are going well. We still have a couple of years of increased maintance costs to get the property back in shape but once it is caught up it should cashflow $250 - $300 per unit after debt servicing

Lessons learned? Challenges?

Have an electrician come to the home inspection. My property manager and I missed some electrical code things which is going to end up costing me $10,000 to update and does not make the property worth more or able to rent for more. Due to this I brought an Electrician to my last inspection (a 12 unit) and he found some major electrical issues which would have cost us $25-30k to correct. We were able to use that to negotiate the purchase price down.

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

Yes the property was on MLS so we worked with the listing agent. since I'm a licensed real estate agent I was able to represent ourselves in the transaction. Our Local Credit Union, Jeanne D'Arc, was great and I'm continually impressed with their commercial product. If you're a member of a local Credit Union they're definitely worth checking out.