Find the Opportunity, Make the Deal.

[Obadiah Roszman]

Investment Info:

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

Purchase price: $45,000
Cash invested: $85,000

The "problem" (opportunity) to solve on this project was the downstairs unit. The previous tenant was a hoarder which caused the unit to be badly neglected for a long period of time. It was so bad that the landlord decided to sell rather than address the repairs. The kitchen sink had been leaking for so long that the entire kitchen floor was rotted out and I could see into the basement. The other "problem" to solve was the bathroom. 

The entry to the bathroom was so narrow that you had to walk in part way, turn sideways and walk in the rest of the way. On the first walk-thru with the realtor I realized we could blow out a wall and make the bathroom twice as big which would allow us to bring the washer dryer upstairs out of the old dingy basement. I think being able to see what others couldn't on this deal is what allowed me to buy it. It sat on the market for close to 3 years before I caught wind of it. By the time I came in I ran the numbers through the BP Calculators and knew exactly what I could pay, which was about 30k less than asking price. After a little back and forth, the owner took the offer and we were off and running. With some creative financing we were able to refi and have zero dollars in the deal in less than 3 months. The property is on a 15 year note and still cash flows 300+ per month with 40k+ in Equity. Looking for a 4 unit next to stack up....

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

Going into this deal I was looking for my first long-term hold. From doing flips in the past as well as being a residential renovator for my “day job”, I knew I wanted to look for something below market value that needed rehabbed. I also had a couple hourly guys I needed to keep busy for the winter so this was a good fit all the way around.

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

Found this on the MLS (Zillow)
Originally listed Jan of 2017 and pulled and relisted a few times, this one had been on the market for a while. I only knew it had been on for at least 90 days, as that’s how I run searches on the MLS. When I located the property it was listed at 69,000, my original offer was 39,000. We Closed on Dec 6th 2019 for $45,000 After the Refi, I'll have Zero $ in, and have 40k+ in Equity.

How did you finance this deal?

My Roofing and Remodeling company lent my Property Acquisition Company the money from a business line of credit for both the purchase price and the rehab costs. I made a contract between both companies, and recorded a mortgage at the County Courthouse. This enabled my bank to wave the traditional 6 month seasoning period and refinance the loan immediately.

How did you add value to the deal?

Interior remodel and new replacement windows installed. Siding slated for the Spring and additional off street parking in the summer 2020.

What was the outcome?

Overall this deal went pretty much as expected. We predictably went over budget, mostly because of splurging on better finishes. We had one unexpected major addition to the rehab scope which was a new water main that needed installed out to the road.
Added $1700 to the rehab.

Lessons learned? Challenges?

I learned pretty quick on this one that being a landlord is a totally different ball game than flipping. Having tenants added a new level of stress and complexity to the deal. While the upstairs on this one was rented throughout the rehab, it proved to be a double edged sword. The rent from the upstairs paid the holding costs, but the tenants were calling and texting quite often with issues relating to the construction going on downstairs.

The challenge on this, and most deals, is to find the opportunity and then make the deal. I wonder how many people saw this deal listed on the MLS and scrolled right past, or perhaps walked through the property and didn't even make an offer. Many people are afraid to make so called "low ball offers", but if you run the numbers, whether it be thru the BP calculators, or scribble them out on a napkin, your offer won't be "low ball" but rather the true and correct number your should pay for a property. If the seller wants to refuse your offer, so be it, you can walk away from the deal knowing you did the right thing. In this case when we closed the seller made a comment to my realtor something to the effect of “getting robbed”. But the truth is he knew exactly what that property was worth in that condition, and that’s exactly what he got paid for.

Lesson Learned - Find the opportunity, see what others can’t see and MAKE the deal!!