7 Condos in an 18 Unit Condo Building
Kansas City, MO
Westport Area of Kansas City
420,000 Purchase Price
Purchase Rents: $650/month
200,000 Investment($28,500/unit)
Stabilized Rents: $1250/month
10% Cap Rate
30% Cash on Cash Return

We recently refinanced into a 10-year note at 4.61% interest and currently in the process of buying more units.

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

We were originally looking to buy one condo in this building of 18, but we soon learned that the owner was interested in selling all 7 of his units. A few of the units were rented at $650/month and a few vacant with one gutted. Other non-remodeled units owned by others were renting for $800. We know the area well with the location being very close to KU Medical Center and Westport Entertainment District. We were confident we could put $15k in each condo and get $1,000/month in rent.

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

The realtor listing the project was a single-family home part-time realtor and the first showing was actually with the owner. The owner was a local brewery owner and won the lottery about 15 years ago($14,000,000). We knew he was behind on his taxes now, so something must have gone the wrong financially or he just didn't care about the property. He had them initially listed for $90,000/unit. After meeting and discussing with him his priorities, he decided to sell to us for $60,000/unit.

How did you finance this deal?

Initial Down Payment: $63k (Lines of credit)
Initial Loan: $420k
Construction Loan: $140k
LOC injected for additional remodel: $40k
Cash injected for additional expenses: $20k
Refinance after stabilization: $460k at 5.75% Int. for 5 yr., 20 yr. Amort.
Refinance 2 years later for $560k at 4.61% Int. for 10 yr., 30 r Amort.

How did you add value to the deal?

We used a cap rate of 10% and cash flows of 20% to value the deal.

What was the outcome?

After refinancing 2 years later, we have paid off our lines of credit completely(no cash used), and now still have a 10% cap rate but comps are capping at 7%, so we have an asset now worth $960,000 according to the appraised value with a $560,000 debt liability. 1.4 debt to equity ratio. Rents are $1250/month and cashflow is about $35,000/year and we have $100,000 LOC ready to use on our next project with a possible additional $100,000k we can pull out of the project.

Lessons learned? Challenges?

We are documenting all of our lessons learned at www.failintosuccess.com

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

Lead bank in Kansas City was great to work with on the initial remodeling loan. Bank of the West was great to work with on the refinance 2 years later.