My First Investment Property (from 2016)

[Cody Charnell]

Investment Info:

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

Purchase price: $420,000
Cash invested: $135,000
Sale price: $595,000

Purchased this property with a partner in 2016. Our intent was to hold the property for a couple years and fix up a couple units/raise rents along the way. The property was in rough shape when we purchased it. We fixed up 2 of the 3 units and did some exterior work before selling in 2018 and doing a 1031 exchange into another property.

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

The brokerage I work for specializes in helping people build wealth in multifamily real estate in the greater L.A. area. I started working for the company because I knew I wanted to invest. After a few years of helping clients and saving commissions I was able to purchase this as my first investment property.

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

I actually found this deal off market. I sent my proposal to the owner and apparently he liked it. I never spoke to the owner directly but worked through his PM. It took me so long to convince my partner to write an offer on the property that the owner took my analysis to a real estate broker that he had used in the past and listed the property at the price I had suggested. We competed with 18 offers and won b/c they remembered me and knew we were serious. We weren't the highest offer.

How did you finance this deal?

We used a 25% down residential investment loan. 30 year fixed rate. Pretty standard financing

How did you add value to the deal?

We added value by fixing up two of the units and raising rents. The property consisted of (2) 1bed/1bath units and (1) 2bed/1bath unit (2 bed unit is legally 2 beds however it operated more like an XL 1bed). Rents were $1000, $1000, and $1200 when we purchased the property. We fixed up one of the 1bed/1bath units and rented it for $1125, rehabbed the 2bed and rented it for $1375, and began charging $100/month for the 1car garage. We also repainted the exterior of the property.

What was the outcome?

The outcome was great. The property was cash flow positive the entire time we owned it and we were able to sell for a profit. We did a 1031 exchange and rolled our proceeds into another triplex. By the time we sold the property rents had gone up considerable, so the rents we were getting were actually on the low end. The person who purchased the property had room to add additional value.

Lessons learned? Challenges?

When we first purchased the property we had to deal with a guy living in his van in front of the property and breaking into our laundry room to store a bunch of personal items. Luckily we had professional management to help us deal with this. The neighborhood has improved a lot since we first purchased the property.

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

We used Borba investment Realty to manage the property and help us with the rehab. Management was extremely helpful.