Our First Purchase: A nearly condemned duplex

[Ian Broadie]

Investment Info:

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

Purchase price: $257,000
Cash invested: $18,000

Bought this duplex as a house hack for $257k (around $100k under market value) when I was 25 years old. After renovating it, we had it appraised at $620k in spring 2019. Changed our lives in a very positive way - obviously financially but it brought my wife and I very close and taught us how important it is to improve, even just a little bit, every day.

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

I was adamant about house hacking a multi family for our first home, my wife wouldn't live anywhere besides Gig Harbor. With only 64 duplex's in the city (and less than 100 <5 unit buildings) we had our work cut out for us.

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

Property was listed at $330k, which was a great price. We reached out to the agent within hours of it going on the market, however we couldn't compete with the three cash offers they received within the next 24 hours. It went under contract but we were able to workout a backup offer position. As you can guess, original buyers backed out (major fixer), we stepped in and negotiated it down to $257k with $7k in seller paid concessions. Best thing that could have happened for us at the time.

How did you finance this deal?

New construction portfolio loan from a small local bank (Timberland Bank). Lender initially turned me down after sending a rep to inspect the property - this was due to it being such a bad fixer upper and seeing me, a 25 year old with no experience. I began looking for alternative financing but after getting the price down so dramatically I put together a presentation for the lender and showed that the numbers were so good I would have to really mess things up. They changed their position.

How did you add value to the deal?

Opened up the view, did a bump out, replaced roof, removed some walls, added others, new wiring and plumbing, added a bathroom on one side and a bedroom on the other, fixed up the owner occupied side as if it were a flip and not a rental (cabinets, flooring, drywall, etc) and just made it a place anyone would be happy to live at. Next step is to change it into townhomes or condos - each side should be worth around $500k and rent for around $2500.

What was the outcome?

This created a lot of equity for my wife and I so we could start our lives together on the right foot. Also lowered our cost of living to a point we could live on just her teacher salary. Gained a lot of experience and connections. Learned a ton. Made a lot of mistakes, obviously - biggest one being that I spent too much time on this project (3 years) when I could have done multiple projects. Very happy with the outcome.

Lessons learned? Challenges?

Spent too much time and money on one project, could have been dramatically more efficient. We were building a home and not an investment.

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

I'm a real estate agent and represented myself! Took around a year to find the right opportunity but great deals aren't on every street corner and sometimes you need to kiss a lot of frogs.

BP always talks about building a relationship with your local banks. Do it, it's super valuable.