16-Unit Class C, garden-style apartment building. The complex consists of one 10-unit building, two 2-unit buildings, and two cabins. The units are mostly 1 and 2-bedrooms with one converted 4-bedroom.

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

This was off-market with a burned-out mom & pop owner with an incredible amount of upside. We purchased 12 units initially and then purchased (from the same owner) two adjacent duplexes. Initially, we purchased the 12-plex way under replacement value ($380K).

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

My business partner, Mitchell England, found this property off-market via old-fashion cold-calling.

How did you finance this deal?

Bank with 25% down / 30-year amortization. We put $40K down and had the seller carry back $70K. We financed $170K additional capital into the note for rehab expenses. We spent $130K of that $170K over 6 months upgrading the property. The appraisal after rehab came in at $800K on the initial 12 units. So $380K purchase, plus $170K rehab, we created $250K in added value in 6 months! When adding the 4-plex, we refinanced the seller out and got our initial capital back out.

How did you add value to the deal?

Rehabbed most of the units with paint, cabinets, flooring, etc. Painted the exterior, New name and sign. Evicted problem tenants (drug dealers). Removed failing carport. Added exterior landscaping and lighting. We added additional bedrooms in a few larger units to include converting a now unneeded office into a fourth bedroom. We also converted the one bedroom units in the added 4-plex to 2 bedrooms, allowing us to increase rents.

What was the outcome?

In the end, we were able to create over $300K in additional value and $3000 / monthly cash flow. The best part is that we were able to pull out all our initial capital and add 4 units 6 months later. This one was a home run.

Lessons learned? Challenges?

We always like to buy below replacement cost and for cash flow. Although we came out way ahead, I think we might have underestimated deferred maintenance expenses. The seller was burned out, lived on the property with her tenants, and was in a maintenance spiral. So, when you buy from a distressed seller well below value, factor in a higher amount of deferred maintenance expenses. Also, if vetted correctly, tenants on government housing assistance can be great, especially during this pandemic