My First Multi-family, a Slump Block Success!

[Mark Cox]

Investment Info:

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

Purchase price: $180,000
Cash invested: $35,000
Sale price: $275,000

My first ever investment property, what a piece. The rental income covered the mortgage and the additional cash flow was enough to help me repeat the process in 2015 on a 2-bedroom duplex with my soon-to-be wife. I sold the 4-plex in 2018 and rolled the equity into a flip for my family to live in just before my son was born.

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

My brother Matthew gave me a book in 2013 - "Investing in Real Estate" by Gary Eldred. He then encouraged me to do some 'house hacking' by buying a multifamily and living in one unit while renting out the others to pay for my mortgage. After reading the book and running the numbers, I knew this was the best place to invest what little savings I had.

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

I found the property on the HUD website. It was the only 4-plex on the site in my area at the time, but it was in pretty bad shape. Lucky for me, there was a 30-day period where they were only accepting offers from owner/occupants, so I jumped on it! It appraised for the asking price (strange), so that's what I offered, which was accepted in 24 hours.

How did you finance this deal?

I financed this HUD 4-plex with an FHA loan (3.5% down at 3.75%) using about $8,000 in personal savings.

How did you add value to the deal?

Refreshed/updated cosmetics myself [New paint inside and out. Resurfaced/refinished cabinets, doors, and bathtubs. New counters, sinks, toilets. Replaced very old vinyl floors with stained concrete. Refurbished appliances.] New evap coolers, furnaces and ceiling fans. Replaced the main water line and all gas lines myself from the meters using YouTube tutorials and seeking advice from experts at local plumbing supply companies.

What was the outcome?

I earned $20k in equity just after purchase because HUD threw in $5k to bring it up to 'livable standards' and I stretched every dime out of that. After moving in, I fixed each unit myself, one-by-one and rented them out. With each one I learned so may invaluable lessons.

Lessons learned? Challenges?

I should not have sold this property. I should have done a cash-out refinance for additional improvements to attract higher quality tenants and reused my FHA to buy my family's first house. I also should have screened my tenants better to avoid a few evictions.
The biggest lesson was that I needed to develop systems for everything. From the initial analysis to estimating/ planning improvements, listing the units for rent, screening renters and knowing how to handle issues that arose.

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

I worked with Gary Roberts from Long Realty in Tucson, Arizona. He did a great job coaching me through the deal. He was an ELP on Dave Ramsey's website.