First Real Estate Deal - 5 Unit in Harrisburg PA

[James Zito]

Investment Info:

Large multi-family (5+ units) commercial investment investment in Harrisburg.

Purchase price: $220,000
Cash invested: $55,000

This is my first ever true real estate investment. I learned a TON on this property. It took so much time and effort to find this property, and the great team in Harrisburg PA. I traveled all over until I found the right location, the right boots on the ground, and the right property.

This deal felt like a home run from beginning to end. I can't wait until the next property!

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

I am very interested in buy and hold real estate. Especially the BRRRR method. However, after searching for almost a year to find the right location and the right property: I settled on Harrisburg, PA. It is a great location with a stable job market. My RE Broker convinced me that for my first property I should go for a property that does not need much work. Since I have no experience (yet) of rehabbing a property, I decided to go with his advice, and I am so glad that I did! I love this place!

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

I found a great team of like minded spirits at the Keller Williams of Central PA. They were able to bring me mostly off-market deals from their relationships in the area. This was actually the very first property that they had lined up for me to view. After viewing it the first time I almost passed on it because the property was in too good condition. I was looking for a property we could fix up and add some instant equity. So glad I did not pass on this great property!

How did you finance this deal?

I brought 55K to close, and the previous owner agreed to hold the rest of the note (220K) for 10 years. We did interest only payments for the first year to aggressively save a reserve pile of cash for any repairs, maintenance, or capital expenditures we may need. We should have that fully funded by year 2. The loan cannot be paid off before 5 years since the owner is looking to retire and did not want a large cash purchase to effect his taxes.

How did you add value to the deal?

As people move out we are fixing up the apartments (adding HVAC systems, and other upgrades) and raising the rents. Besides that the property does not need much work, as it was loving maintained by the previous owner for over 2 decades. It has a few cosmetic issues that we are looking to improve especially as we get ready to refinance the property around year 5 or 6. For instance we may change some of the outside trim and improve its overall appearance.

What was the outcome?

So far its been a great experience! The property basically sits and collects money. We are approaching our reserve goal faster than I initially anticipated, and we should be able to start drawing an income form the property soon (if we decide to). The property is currently cash flowing about 750 to 800 per month. And when all is said and done we should have it up to about 1K per month in cash flow.

Lessons learned? Challenges?

Never give up!

We looked for almost a year to try and find the right neighborhood, local team, and property. It was very discouraging at times. We even traveled to Indianapolis to do an inspection for three single family homes we had under contract for 180K, but the condition of the properties was terrible. I had flown out there for the inspections, and told people we were buying so it was discouraging when that deal fell through. But my wife encouraged me never to give up.

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

Yes I worked with Keller Williams of Central PA. They were amazing from beginning to end. Patrick, Chris, and Tim were the dream team and they still work with us with Chris's property management company. They are great and true students of Gary Kellers philosophy (author of The One Thing, Buy and Hold, Flip, The Millionaire Real Estate Investor). I highly recommend working with them if you are interested in Central PA. I can't wait to do my next deal with them.

[James Zito]

@Tim Harwick Harrisburg in general is a great market. The downtown area is beautiful and is right along a river. The area has a lot of historic buildings, and is situated about 20 minutes from Hershey, PA (Hershey Park), and about 45 minutes from Gettysburg. 

The city had almost gone bankrupt a few years back. There is a lot of eyes on the city right now to make sure they get it right this time. A lot of money is flowing in to develop the area properly. It is the state capitol after all, and they are in the process of developing the city and fixing up a lot of the areas. 

I was also interested in Bethlehem and Allentown, but a lot of the development work in those towns already seem to be well on its way. Harrisburg was just easier to find a really good deal this time around, and we partnered with a great team, which in the end made all of the difference.