New purchase...now to figure out what to do with it!?

[Timothy Doenges]

Investment Info:

Small multi-family (2-4 units) commercial investment investment in Fayetteville.

Purchase price: $90,000
Cash invested: $3,000

Purchased large single-family house (7 bed, 3 bath), with the intent of converting into two large units with bonus living space. Lower level is a 2 bed, 1 bath, with a formal dining room that could be converted to a 3rd bedroom. Upstairs unit is a 5 bed, 2 bath with attic space available for storage or potential 2 more bedrooms. Upstairs already had separate ground access.

Alternative exit strategy would be to operate as a mixed-use property with a single-unit rental property below and a 5-unit STR above. Will have to analyze the deal further to determine which has better output and resale value vs. the amount of time and money to operate as a business instead of passive investment.

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

We already operate a 4-unit vacation rental property, and the prospect of using that to own a duplex with potential for short-term renters in the second unit was interesting to us.

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

We found this deal on the MLS, and we negotiated after inspection. We found that the heating system was defunct and needed to be replaced. Also, the property needed some various cosmetic updates, especially if we are to operate as a STR, and needed a patch vs replacement on the roof.

How did you finance this deal?

Financed by commercial loan at 85% LTV. Since the property appraised in such a way that the purchase price was under 85% of the appraised value, the lender allowed us to use all lender funds to purchase the property, with the expectation that we will do all repairs up to the 15% mark out of our own pocket and provide receipts to the bank to prove use of funds.

How did you add value to the deal?

Adding value by installing a functioning heating system and upgrading roof to 40-year industrial metal roofing. Also doing some minor work to fully separate the downstairs and upstairs so the property can function like a duplex.

What was the outcome?

Just purchased the deal, so unknown.

Lessons learned? Challenges?

This one was hard to finance at first. We were working with an endowment fund that pulled our financing at the 11th hour and left us scrambling, but we righted the ship and were able to purchase the property with our back-up financing strategy. Lesson learned: always have a backup, you never know when you will need it.

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

I am a real estate agent!