Investment #2-Three duplexes

[Patrick Menefee]

Investment Info:

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

Purchase price: $155,000
Cash invested: $10,000

This is a group of three separate duplexes side-by-side on the same property. Each of the six units are 1br/1ba/500sqft.

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

Multi-family is currently my bread and butter (I don't have a lot of bread or butter, but I do have 2 multifamily...)

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

This had been listed on the MLS for a couple of months. The units are unique, as is the situation of having three separate buildings on a single property, which is why I believe it sat on the market as long as it did despite the attractive rent roll. It was listed for just under $180,000, and my max purchase price was $160,000. I put in an offer and they countered at $155k!

How did you finance this deal?

Because it was a single parcel with 6 units, I couldn't secure conventional financing and instead had to get a commercial loan. I used 25% down, 5 year balloon (I think? More on that below), and went in with a partner who provided 90% of the up front cash

How did you add value to the deal?

**Just closed, so updates are not yet underway**
3 of the units have been recently updated (not the best work), are in pretty good condition, and have increased rents. The other 3 units need some touch-ups in order to raise rent, to include flooring in the kitchen and bathroom, a deep cleaning, interior paint, and possibly new appliances in the kitchen.

Additionally, I am hiring a surveyor to go out and subdivide the lot into two, with two duplexes on one and a single duplex on the other

What was the outcome?

Once I get the units repaired and get the property subdivided, I'll refinance into two conventional mortgages. This will also be an "accidental" BRRRR where based on the ARV I will be able to pull out the majority of the cash invested. I'm looking at an ARV of ~$210k, and between $10-13k in repairs depending on the cost to split water. At a $13k estimate for repairs, I'll pull out all but around $8,000 while receiving $745/mo cash flow and a 106% COCROI

Lessons learned? Challenges?

Funding was a challenge. Many lenders want a commercial loan to be at least $200k, and many have a prepayment penalty which would hurt when I refinance. Additionally, my partner was looking to be a silent investor and not be on a mortgage which added to the challenge. Ultimately, shopping around for a local lender who could do what I was looking for was invaluable and was well worth the patience

[Nathan Gesner]

Congratulations, @Patrick Menefee! This looks like a good deal that should cash flow nicely. I wish we had more opportunities like that in my market.