Multi Family Reposition in Greensboro NC

[Gaston Prevette]

Investment Info:

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

Purchase price: $225,000
Cash invested: $95,000
Sale price: $300,000

We found this 8 unit through the broker relationship we created on the deal we closed 1 month before.

Property Details:
2- 4 units buildings ( one parcel)
All brick
Concrete parking lot ( ample space for parking)
New roof on 409 Sykes( replaced in 2017 from Tornado)
Roof replaced in 2010 on 407 Sykes
Newer vinyl replacement windows
All units are 2/1 – 800 sq ft
Central AC with Apollo gas water heaters
Washer/ dryer hook ups in all units
5 of the 6 occupied units had newer AC systems ( last 7 years)
Owner pays water
Tenants pay electric/ Gas ( 2 of the current units the owner was paying for Gas/Electric)
Low incidents of crime from last year analysis performed by Guilford County Police
Near bus stops
Close to Grocery/ Convenience stores and local employment
6 of the 8 were occupied
Tenants had Canisters for Trash ( roll ups they had to take up long hill)
2 units were vacant and down to the studs from fire 18 years ago

DEAL DETAILS:
Listed with the broker that was representing us from our last deal with him one month before
Seller wanted $300
Agreed to $225K
6 of the 8 units were occupied
Self managed
$3570 Gross Rents ( less water which owner paid, and utilities for some of the units)
Disinterested landlord who did as little as he could for his current tenants, and didn’t have any desire to get rents to market rate as he owned outright ( he was a slumlord)
Rents were under market between $50-$75/ door
Long term tenants that wanted to stay but wanted to have a nicer place to live and better customer service
Buildings were in great shape being all brick , but the area needed some TLC
Longer term tenants that were month to month
Opportunity to essentially build 2 brand new units and have this be a true 8 unit

Strategy:

Buy Right, Manage Right and Finance Right # WheelbarrowProfits

When we took over end of February 2019 the gross rents were around $3570/month ( less water $270/ month, gas/electric of 1 unit @ $200/ month which equated to $3100/ month and our projections are $5,110 Gross Rents with all 8 leased ( less water for all 8 units $240, no payment of any utilities ) equals $4870/ month Gross rents.

We had property management in place from our other 12 units and worked with them to start managing these 8 units for us as well and help us start repostitioning this property.

Finance Details:
20% down of Purchase Price with built in of Rehab budget of $90K ( $61K )
Closing cost of $6,000
5.25%
7 year Balloon on 20 year Amortization
Interest only first 6 months
Construction Draws provided as work was completed

The value add potential :

We knew that rents were under market between $50-$75 ( in some units) , we could decrease the water expense with ( low flow shower heads, new toilets, actuators in all faucets), we could eliminate paying any additional utilities outside of water for any of the tenants. The real diamond in the rough though was the 2 gutted units, and the ability to create two brand new units for $30K/ each which would dramatically increase the NOI because it would officially be an 8 unit.

Within the first week 2 tenants moved out but the other 4 remained which we didn’t’ expect but was OK because our plan was to rehab all of the units within the first year anyway. We had already built our scope of work before we closed, and had contractors lined up to get started so we were able to hit the ground running. Within in 12 weeks we were able to essentially build 2 new units ( will break that out below) rehab two more units, up-fit the existing units with water saving measures and fix the foundation leak, drainage issues ( another un planned cost) along with giving the entire complex a significant face lift.

REHAB BUDGET and SCOPE OF WORK :
$90K ( built into loan)
$30K for each Gutted unit
$5K per existing unit x6 = $30K
TOTAL Spend was $100K
$4500 for Foundation issues, landscaping, etc

2 gutted units:
new electric- 200 amp upgrade
Blown insulation for attic ( r38)
new sub floor
New insulation throughout
New sheet rock ( 5/8 fire wall for exterior living room walls, kitchen and in stair well)
New 6 panel doors throughout with all new satin nickel hardware
New 6 panel Steel Front and Rear Entry Doors
New plumbing
New HVAC system( all electric got rid of gas)
New Thermostat
New lights
New Hot water heater
New kitchen layout ( removed half wall to open up to living room, built alcove for fridge to increase floor plan)
New white shaker cabinets with hardware, countertops , fridge, stove, range hood
New LVP throughout
New Carpet in bedrooms
New bathrooms ( vanity, tub, enamel over steel tubs, tiled surround, vent fans, vanity lights, faucets, low flow toilets, shower heads, and actuators)
Added 1 new window in each kitchen

Other units: ( completed in 409 B and 407 D ) other units will be rehabbed once tenants move out
New LVP in LR, BR, Kitchen and hallway
New Carpet in Bedrooms
New six panel doors/ hardware
Glazed existing tub/tile
New shower hardware
Low flow water options ( toilets, shower heads, actuators throughout)
New water heaters ( 407 D)
Replaced AC 409 A ( it was 28 years old)
New Fridge 409A
New Fridge 407C
New Stove 407 A
Painted stairwells ( versatile grey) had attractive/durable commercial grade carpet installed on stairs
Installed new lights in stair well and motion sensors in 409
Installed Motion Sensor Flood lights on all the corners
Installed Video Cameras on problem areas
Had Duke Energy replace old lights with brighter LED on two poles
Installed keypad entrance for both exterior stairwell entrances
Cleaned/ repaired other AC units
Fixed any issues with plumbing as needed
Fixed any issues with existing water heaters
Installed new black shutters on both building
Implemented quarterly Pest Protection
Installed raised landscaped beds for 407 ( parking lot facing)
Installed new Numbers for both buildings
Painted all exterior doors black installed new hardware
Painted central mailbox black

We are still actively repositioning this property and will have another two tenants moving out end of this month ( September) but the property has generated enough profit from the other units at the increased rental rate that the business will be paying for these upcoming turns.

Once fully occupied we will have gross rents around $5000/ month which after ( PITI), monthly reserves and the other expenses we have built in will create 17% Cash on Cash for our business.