Purchase, Hold, and Sale of 4-Plex in Columbus, Ohio

[Ryan Haley]

Investment Info:

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

Purchase price: $125,000
Cash invested: $125,000
Sale price: $175,000

All-cash, out-of-state purchase of 4-unit multifamily, intending to hold indefinitely, using a local Realtor and associated Property Management company. Rent-stabilized and improved tenant quality, with top-line revenue of $2700/month. Moderate CapEx and property improvements. Strong market conditions led to sale after 28 months of ownership, with the below returns:

-Total Return over 2.5 Years (Net): 43%
-IRR: 18%
-NPV: $54,000
-Cumulative Cap Rate: 11%

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

I wanted a high-cashflow rental property for passive income, in a strong market, and at a price point I could afford on an all-cash basis.

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

A mentor/consultant guided me through the process, after he had built a team and purchased many properties in that area.

How did you finance this deal?

I paid all-cash with a combination of savings, non-retirement investments, and cash value from a life insurance policy.

How did you add value to the deal?

Rent-stabilized the property, increased tenant quality, and made some moderate repairs and CapEx

What was the outcome?

A phenomenal net return over less than two and a half years .

Lessons learned? Challenges?

Cash is king, cashflow is queen, tenant quality is key, and a conservative margin of safety is the ace up your sleeve!

[Ryan Haley]

@Brandon Goldsmith Thanks! Columbus is definitely a solid market, but I did notice that it tightened considerably, even within about 6 months of my purchase. So, it was a good time to be a seller recently, but it's been tougher to find those really great deals in the past couple years as a buyer (and obviously now, COVID-19 could completely change everything). One of the biggest factors as an out-of-state investor is the local team on the ground (esp. Property Manager), since you're really at their mercy as an absentee landlord. One thing I really look for in my team is that they are all REIs themselves and own properties in that market. As I mentioned, the thing I learned is that tenant quality (and by association, location) is critical. A seemingly huge gross profit/rent-to-price ratio can be reduced significantly by an extremely high expense ration as the result of tenant behavior, vacancy, and completely unexpected "one-off" or "random" events, that somehow happen consistently. It's rarely the same thing, but it's always something; if that makes sense. 

When doing a top-down market analysis, you want to look at fundamental supply and demand characteristics: healthy and growing population base, demographic trends, diversified employment sectors (so if one industry goes down–like the auto industry in Detroit–the whole town doesn't go down with it), talented and educated workforce. Then, I look at places with high rent-to-price ratios with solid B or C class tenants. Personally, as a cash investor, I'm especially interested in places with low price points. Ideally, you want to ideally be in a landlord-friendly state regarding tenancy and evictions laws, as well as a generally business-friendly environment regarding tax laws and public policy. There's probably a whole lot more that could be said, but hopefully that answers some of your questions.