We acquired 1302 and 1304 E 13th St. in May 2018. The two properties were listed on the MLS in a single listing as a single family home on a large lot. In review of the property we realized there were two parcels, one with a single family home and a vacant lot. The properties are in the University Heights neighborhood of Tucson where we've done a handful of deals over the last few years. We identified University Heights as a neighborhood with great appreciation and rental potential back in 2016. With this property located in one of our target neighborhoods we were very excited about this acquisition. 1304 was a small, old, rundown SFR and 1302 was a vacant land lot . We paid $205k for the package.

We started work on 1304 soon after closing. This project was a complete remodel; adding over 1,000 square feet and modernizing the kitchen, bathrooms, and layout. The project took 11 months to complete and was sold in April 2019 for $370k as a five-bed, three-bath home. Our construction costs totaled $182,854. The buyer was a fellow investor who acquired the home as an investment property. It is currently a rental and last we heard is performing very well.

After completing 1304 we rolled the capital into building a brand-new home on the lot at 1302. The strategy was to list it to a consumer buyer looking for a large modern 5 bed 3 bath home located in central Tucson. The total cost of construction was $263,822 and the build was completed in mid-October 2019.

This house was a tough sell: listing this late in the year was not ideal and we quickly realized we were priced too high. We had to pull the property off the market and elected to hold until the start of the New Year. We went under contract in January, but the prospective buyers cancelled; it was not the right home for them. As a result of the property sitting stagnate for 5+ months our investment committee decided it was time to shift our strategy to holding the property as a rental. Our management team began marketing the home for rent as our sales team relisted the property after the cancelled escrow. Within a week we were able to secure a group of college students at $3200/mo. This led to our team breathing a sigh of relief. Although we had not planned to hold as a long-term rental, a $3,200 per month lease resulted in an unleveraged 7.5% cap rate. We pulled the listing off the market again, thinking we were done. The day after pulling the listing we received an offer from an investor who was looking for a college rental. He was unaware we had leased the home but saw the potential in the location and upon hearing of our newly secured lease purchased the property last month (April 2020) at an all-in price of $411,500.

We were able to build these into two solid investment properties because we knew the neighborhood, we were able to acquire at a fair price, and we had multiple exit strategies. Rarely does everything go according to plan. We have found our highest risk adjusted returns are achieved when we purchase assets we understand in areas we are familiar with where there are multiple options to generate adequate returns. Our IRR for the project was 17.3% (pre-leverage). Everyone's access to capital is different and for the purposes of reviewing this deal I believe it is important to look at the unleveraged return. All returns look more attractive with debt. . .

Below are some before and after photos to show the transformation of these two properties. The first four are the "before" and "after" shots of 1304, followed by a picture of the 1302 lot and three of our listing photos for 1302. The last image is an aerial showing both properties at sunset. Hope you enjoyed this story. Took longer than we anticipated; ran into challenges we were not expecting. However, at the end of the day we are incredibly happy with the end result.