First Deal: "Congrats! You're a slum lord!"

[Tom Matousek]

Investment Info:

Small multi-family (4-units) buy and hold, value add in Morganton North Carolina

Purchase price: $172,000
Cash invested: $34,000
Appraised Value: $260,000

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

Economies of scale, location, value add and recession/coronavirus tolerant. Enough equity in the deal to leave room for first time mistakes and errors in calculations.

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

Located in a local news paper classified. 12 hours after the ad was posted an offer was submitted. After the seller seemingly fell off the face of the earth I happened to run across the wholesaler who scooped it up. We agreed on a price 9k above my initial offer. 

How did you finance this deal?

Commercial 30 year fixed, 20% down. 

How did you add value to the deal?

The purchase price left equity to work with but several minor structural issues were missed by myself and the inspector. A fair amount subfloor and joists were replaced due to termite damage. We will be converting units from  3/1.5 to 3/2 and complete cosmetic upgrade. (Came fully equipped with shag carpet and green toilets)

What was the outcome?

TBD. With the previous tenants, the property was at 500 per unit. Due to improvements to surrounding properties and lack of supply in the local market I'm expecting 875+ per unit (Neighboring sister units just leased for 850)

Lessons learned? Challenges?

• The rules are made up, read every document and assume the professionals have no idea what is going on. (This might be common in ruralish areas but I took the time to write this down as it unfolded.)
  
  Wholesaler's purchase agreement initially had the wrong address
  Insurance policy originally listed 8 units instead of four.
  Lawyer almost submitted articles organization as a manufacturing company and didn't know you could file for an EIN online.
  Few accepted digital signatures. (Renaming the PDF to Scan1234 seemed to ease most fears.)
• Lender required answers to odd questions like why so cheap, what do you know about the seller and added an addendum to fix the back steps.

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

The closing attorney was excellent and had a professional streamlined process. 

(Dear Inspector, since you're on here as well and if you read this no worries. I didn't chose you because of your experience as an inspector ;) )

[Brian Hughes]

My friends jokingly call me a slumlord too.

Slumlord is an attitude.   If you actually fix things, are transparent, fair and up front with tenants,  even if needing to raise rents to something that covers expenses, or while digging out the maintenance backlog of a badly undermaintained property,   you are not a slumlord.   Most halfway decent tenants will see that you give a dang and will respect that.