3rd Buy & Hold - More challenging neighborhood

[Eric Van Deman]

Investment Info:

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

Purchase price: $465,000
Cash invested: $116,250
Sale price: $610,000

3rd Buy & Hold - More challenging neighborhood

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

After having great tenants in our first couple rentals, I envisioned it continuing to be easy to find great tenants and manage more properties. The building looked great with brick construction and the rent to list price ratio looked like it would result in some positive cash flow with opportunity for appreciation in a suburban Denver neighborhood.

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

Listed on the MLS

How did you finance this deal?

Conforming 25% investment property financing with down payment funds coming via 1031 on a condo that we had operated as a rental for a number of years.

How did you add value to the deal?

We got lucky with appreciation as this was most challenging deal I've ever been involved with.

What was the outcome?

Ultimately, we sold the property within a little less than 4 years from our original purchase while generating a substantial IRR. However, the investment was not without numerous challenges. The landlord for the property next door passed away shortly after we purchased this property. The fourplex next door went through a lengthy foreclosure process (before ultimately being renovated by a different investor) and became a home for squatters, suspected drug use, and many other challenges.

Lessons learned? Challenges?

In addition to the property next door, we also had multiple issues with non-paying tenants, a sub-par live-in manager, an eviction, and lots of work on an aging property. Lessons learned include:
- Lower income housing is not for me
- Don't overlook inspection findings or be afraid to terminate a deal
- Thoroughly vet any property management help. Use entrepreneurial property managers.
- Don't buy buildings with flat roofs (very expensive replacement)
- Cash for keys can be a good alternative