Seller Financed - 6 Units Residential Multi-Family

[Daniel Kidd]

Investment Info:

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

Purchase price: $450,000
Cash invested: $50,000
Sale price: $450,000

This is a Duplex and a Quad next to each other. This worked out well because my brother found this near my home town and it was a seller financing deal. I didn't initially think it was all that great of a deal given the numbers at the time, but went into it with him anyway. We were able to immediately up all of the rents by about $100/mo without having to do all that much to the property. We have improved a few units and gotten some new appliances in there as well but the cash flow went from good to great in about 3 months. Now we are just waiting for the reserve to get big enough to buy some more multi.

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

I knew pretty early on that I wanted to go with multi and residential multi is just what I was able to find that didn't need a lot of rehab. I had read a lot about BRRRRs at the time and other investment strategies, but for me at the time I just wanted something that was more or less turn key. I do plan to do a few BRRRRs just to have done it, but high functioning residential multi family has done very well for me so far. Also it is a bit easier to file taxes for four addresses instead of 12.

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

My brother actually found this deal and we didn't negotiate the amount so much as the terms. This was a seller finance deal and we wanted to make sure that we had time to get financing for it before our balloon came due and wanted to make sure the rate wouldn't hurt the cash flow too much. We got the rate at 6% with a 3 year balloon and with $50,000 down. I was kind of surprised that was all that he wanted down, but I certainly wasn't going to complain.

How did you finance this deal?

This is actually were I stopped having money to invest with. All of my investments past this point have been with what I call "fake" money because it certainly isn't mine. Anyway I financed this one by pulling my Roth IRA completely and having my brother help me out a bit on my half of the dp. We had also closed on another duplex that morning down in Fayetteville and this was the first time either of us had bought real estate. That one was conventional but this was a seller financing deal.

How did you add value to the deal?

We went in and rehabbed a few of the bathrooms and some floors, and then upped the rent by about $100/door. It took a little while to get all of the rents where we wanted them to be at but everything is up to market now and doing very well. A few of the renters left, but this actually helped us to accelerate the rehab and get better tenants in there. I am not a huge fan of keeping inherited tenants, because they are the only ones that have given me any issues so I was fine with watching them go.

What was the outcome?

The outcome has been great. Their are a few things that I have learned to look for on inspections that I missed the importance of on this one, but it all in all I couldn't be happier about how well they are producing and can't wait to get into more deals with my brother. It really is fun to do this with someone you trust and be able to share the workload when you are investing remotely in two different cities.

Lessons learned? Challenges?

Just that it is very important to stay on top of things from the beginning. Setting the pace with an efficient rehab and a strict property manager will help to get things off to a good start and ultimately make your tenants happier. This was also one of my first purchases with my LLC so there were a few things to figure out as far as setting that up and the paperwork involved in getting to closing, but it was not overly cumbersome at all.