Mult-family Unit in Gentrifying Neighborhood

[James Cecere]

Investment Info:

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

Purchase price: $795,000
Cash invested: $60,000

6 Unit building in an up and coming area; existing renters and cash flow-positive. Converting one unit to a short-term rental. Multiple repair issues as the building is old and was mismanaged. Already received an unsolicited offer for $1.2MM (cash). This location will continue to evolve, and increase in value. Cash flow will improve with enhancements to units and common area, as well as new s/t rental strategy for one of the units.

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

The location is amazing and it was at a discount versus comps (with good reason...it needed a lot of work). Long term hold focusing on monthly cash flow and asset appreciation.

How did you finance this deal?

Traditional business loan with 20% down; went 50/50 with a partner.

How did you add value to the deal?

Upgrading common areas and landscaping; new bathrooms in two units and repairs to roof and electric throughout.

What was the outcome?

We are at 100% rental occupancy, and the s/t rental will likely double the amount of monthly income in that one unit.

Lessons learned? Challenges?

The original purchase investigation did not reveal the extent of the poor electric, plumbing and roof. We've been repairing a lot of things around these core areas. Next time, a builder should look at something of this size and provide an analysis. Also, the sellers misrepresented the zoning (as did the realtor and title management firm). As a result, we are seeking a variance, which has taken time. Real estate company paying for this, acknowledging their issue.