Acquired my Duplex Doctorate

[Patrick Haug]

Investment Info:

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

Purchase price: $70,000
Cash invested: $160,000
Sale price: $297,000

This was a two family building (built in 1898) where in the original floor plan was functionally obsolete. Our plan when we purchased the building was a complete update. The original floor plan was completely removed from both units and a new floor plan was installed which allowed for 2 bedroom units on the 2nd floor and 3 bedrooms on the first floor (utilizing a portion of the basement). This was a long term hold where at sale the apartments where rented for $1,100 for the second floor unit and $1,500 for the first floor.

We decided to sell after realizing what sale price the market would support and moving our investment to another learning challenge.

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

This was an early deal in my investment career. The potential earnings of the location and development activity in the area made this location and property attractive.

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

This deal was located by 'driving the area'. We located a 'For Sale by Owner' sign in the window. The sale price was reasonable for the condition, location, and current market.

How did you finance this deal?

Original purchase was achieved through a conventional loan. The improvements were financed through silent/private investors. The original investors where paid back through a refinance a few months after the completed renovation and tenant placement.

How did you add value to the deal?

This building was completely functionally obsolete, four rooms with a narrow bathroom (obviously installed post original construction) which was in a state of disrepair. The building was being used by the previous owner as a storage structure & had been for some time.
The new floor plan design was implemented for each unit (2 total units) which in turn captured the highest rents in the area for at lease the first 10 years post renovation completion.

What was the outcome?

After purchase it was debated which avenue to pursue for a renovation, either a conversion to a single family home or maintaining the duplex floor plan. Hind sight reveals that our decision to keep it a duplex paid dividends, especially during the financial downturn of 2007 through 2010.
We sold the investment (the highest sales amount at the time in the market) and pursued other Real Estate investments.

Lessons learned? Challenges?

Wow. This property was my doctorate in real estate. I learned everything from coordinating volunteers for a demolition party, placating investor fears, project management, mitigating contractor disputes, market analysis for apartments, advertising, property management, etc...

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

This duplex was purchased using a local agent.