First Duplex - Added $60K in value after 8 months

[Nick Berard]

Investment Info:

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

Purchase price: $699,000
Cash invested: $140,000

Duplex - I bought last year & moved in 1 side with my family. Seller was occupying 1 side & marketed pro-forma rents of $2300/side at a 6.5% cap. The other side was rented for $2250 (util included). We fixed our side up & after 8 months bought another single family home & re-rented our side out for $2,495/mo + utilities. Our market cap rates have continued to compress & low 5%'s (even high 4%'s) are selling. Based on 5% cap rate I have increased my value in the property almost $60K in 8 months.

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

Rich Dad / Poor Dad - my wife and I read it together after our anniversary in July 2018. We decided our primary residence was a liability vs asset and made the goal to have all of our expenses paid by 'passive' rental income in the next 5 years.

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

I'm a realtor & let my local network know I was looking for multi-fam for myself to live in. Another agent in my office let me know about it. I originally passed it over because it was only a duplex & I was looking for a 4 plex (or triplex).

How did you finance this deal?

With owner occupancy loan - 20% conventional.

How did you add value to the deal?

Improving my 'owners' unit so it's a higher end rental for the area.

What was the outcome?

I was able to raise pro-forma rent from $2300/mo (utilities included) to $2495/mo + utilities.

Lessons learned? Challenges?

There was more room to negotiate up front with seller (another agent in my real estate office), however numbers made sense & he gave us flexibility to renovate before we closed. My wife agreed to the deal if we could renovate (carpets, paint, bathroom sub-floors, paint) before we moved in. I continued updating w/ new doors & trim throughout, tile kitchen backsplash, and finished 1 garage bay into 5th bedroom / office.

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

As a realtor myself, I was my own agent on the deal. If anyone is interested in investing in the PNW (north of Seattle), specifically around Bellingham, WA I'm happy to chat/collaborate/assist in any way about your strategy or your next deal.