13 Unit Owner Financed Deal

[Phil Capron]

Investment Info:

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

Purchase price: $910,000
Cash invested: $5,074

13 unit multifamily property
Owner financed 6%, 30 year am

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

I was still working as a real estate agent and took a friend who owned about 30 units at the time to see the property. He wasn't able to come to terms with the seller, and the other agent asked if I would buy it with owner financing... I hadn't considered that as an option, but I decided it was time to get off the sidelines and do what I'd been studying for years!

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

It was on the residential MLS. I took a friend to see it because I thought I could make a good commission, but ended up buying it myself with great terms, which has worked out even better!

How did you finance this deal?

Seller Financing: 6% interest on a 30 year amortization

How did you add value to the deal?

Since I don't have a lot invested in the deal, I haven't been very aggressive with adding value. As units turn I've been investing in LVT flooring which will stand up to more abuse than carpet. I added a flat fee for water which has added about $5,000 in top line revenue. Rents were also below market at the time of acquisition, so I raised each $50-100 depending on the unit type which has added another $7,000 in revenue.

What was the outcome?

It is an interesting little property. I'm very grateful I jumped off the cliff on this one and took action, because it's led to 230 more units since. I'm torn because I'm not operating this property optimally at this point. To do so would require significant CapEx and a complete turnover of tenants. With debt where it is right now, I am investigating bridge loans that I can roll a lot of the repairs into. The other option is to invest a significant amount of money myself and then cash out refi.

Lessons learned? Challenges?

Managing small multifamily can be really tough. Especially with older product. I wouldn't undo this deal as it's enabled me to do so much more and has taught me important lessons, but you won't catch me buying this small again. I understand for those who don't own any rentals or own a few units that what I've said sounds insane. Your perspective changes as you continue to expand your comfort zone, I encourage you to find a mentor and go bigger quicker. That's the main lesson from this project.