Even an experienced investor needs to avoid hubris!

[Brian Moore]

Investment Info:

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

Purchase price: $330,000
Cash invested: $90,000

Contributors:
Cooper Marcus, Michael S. Helton

2 Unit investment property purchased using proceeds from a 1031 for the purposes of Buy and Hold

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

I wanted to exit a previous investment in a condo which I only had 18% debt to equity (severely under leveraged). I shopped in my main market of DFW but also shopped locally in San Diego and in Reno. I'm new to the Reno market and heard good things from folks in my network. I'm also a big Tesla fan, and the Gigafactory plus other nearby businesses appear to be driving the job market in the area.

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

MLS. I followed several properties and made an offer on the subject property about $30K under list when it was 40 DOM. I brought it to my agent and she provided a handful of other properties, but the subject property was still my favorite. There were some counter offers but we were able to make the deal at a price that still worked with my numbers. The seller also conceded almost $5000 in repairs after the inspections due to some undisclosed safety issues with the electrical and plumbing.

How did you finance this deal?

25% down traditional investment property financing using my 1031 proceeds.
***Lessons Learned:This was my 8th deal and by far the most difficult escrow (other 7 were 100% troublefree). Initially applied for financing thru BofA which offered 4.75% on a 30 yr fixed working with a loan officer I had previous experience with. Regardless, the loan fell apart 2 days before close due to underwriters being nervous about my other 4 loans.

How did you add value to the deal?

The property was in decent shape. One unit was already rented. On the other unit I resolved the safety issues and also modified the layout. It is a 3 bedroom but one of the bedrooms was only accessible from the main living area through another bedroom. We opened a doorway directly to the main room and sealed off the existing doorway for $2500 as I'm sure all tenants would prefer this layout. I'm renting the unit for now and plan to do some additional value add on the next turn.

What was the outcome?

Both units rented and $650 cashflow per month. I don't consider this property a 'deal' by any means and I got somewhat forced into it due to my 1031 exchange time limits running out, but it has fairly decent cashflow for such proximity to CA. I'm bullish on Reno and optimistic about both appreciation and an increasing rental market.

Lessons learned? Challenges?

***Continued: My CPA had also filed 2018 tax return with CapEx items filed as OpEx thus impairing the margins and Debt to Income ratio of my portfolio. Seller demanded $1400 to stay in escrow. 2nd lender was 5.375% for the same product but managed to close 90 days into the initial escrow..which put me into December with a vacancy! I also switched employers during escrow which caused additional issues. I came into this deal with a lot of hubris about my ability to obtain financing, NEVER AGAIN!!!

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

@Cooper Marcus provided me with a property manager referral that I ended up using, but it might be a little preliminary to recommend this company. Also @Michael Helton is a local investor and was very generous with advice and providing alternative lenders when I was having difficulties with financing. Thanks guys!