Recent Rental purchase in the COVID Conditions

[James Irvine]

Investment Info:

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

Purchase price: $97,000
Cash invested: $23,000

Found a small 2 family that has a gross cashflow $1,600 a month with a PITI of $725 a month. On top of that tremendous spread I was able to negotiate for the Seller to Finance the deal allowing me to only come out of pocket $23,000. The purchase price was also roughly 15K below market, giving me an immediate equity gain upon transaction. I plan to hold and rent this property for at least 10 years.

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

I found this deal as a reasonably priced 2 family that was being sold by owner. This is a signal for me to explore creative financing which is how I negotiated a Seller Financed Deal.

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

I saw this property while actually driving to see another 2 Family. I pulled over and called the number on the sign and actually got in contact with the seller, I started asking soft questions to feel out the situation and built some rapport. It was an elderly woman who was tired of driving up and checking her property and was even hesitant to drive up and show me the inside. This told me I needed to make the process super easy for her, which is what I proceeded to do. Closed 3 weeks later.

How did you finance this deal?

Seller Financing because she didn't have any debt on the property. 20% down payment with a 5.25 IR, 30 yr Amortization with a 3 year balloon.

How did you add value to the deal?

I added value to the deal by purchasing the property for conservatively 15K below market. I also will be an in-town property manager operating the property with more efficiency. This seller was unique and very educated but wanted the process to be a breeze with her elderly age. This being my 6th deal in town I felt very comfortable in the process and knew where to take shortcuts to provide ease for her ultimately closing when others could not.

What was the outcome?

Bought the property 1/2 occupied so currently doing a cosmetic rehab on the vacant unit and assessing any deferred maintenance as spring rolls in. The current 1st floor tenants rent is $700 and the PITI is $725, so only $25 a month out of pocket during rehab.

Lessons learned? Challenges?

Biggest lesson here is you will never get what you don't ask for. But theres a caveat in the sense that the better a relationship you can build, the more likely they will accept what you ask. This tells me in my business, I have the opposite of the "spray and pray" approach with placing offers. When I find a good deal I put a lot of effort into nurturing it into closing, particularly because I love the "people" aspect of this business.

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

No this deal was unique in the sense that it was forsale by owner and I purchased without a buyers agent. To everyone who is going to say "theres no downside in a buyers agent!" I will have to disagree in this specific case. I was able to build a strong relationship with the seller ONLY through direct convo, resulting in seller financing. I also reduced my offer by 2k having saved the seller from paying a buyers agent commission which she agreed.