My First Duplex with almost 20% Cash on Cash Return!!!

[Matthew White]

Investment Info:

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

Purchase price: $180,000
Cash invested: $50,000

2 Bedroom 2 bathroom Duplex located in the wealthiest and fastest-growing county in Georgia, Forsyth County. Originally built in 1983, this ranch style duplex had not seen much updating yet has had constant renters.

We renovated one unit (the other unit was occupied with a long term low income tenant which for now is staying in place bc they are no trouble at all). We spent a little more on the renovation than desired however we were able to command above-average rent.

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

This deal fell in my lap. A local investor that I had built a relationship had this deal brought to him, however he was unable to move on it because he was tied up in a new acquisition of a large apartment complex.

The seller was offering very favorable owner financing for As Is. This allowed me to close very quickly and begin the rehab to get the property at 100% occupancy.

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

As I mentioned. This deal was a pocket deal that was brought to someone I had cultivated a networking relationship with. Since he was unable to move on the deal, he brought it to me, as well as made several suggestions on areas of renovation.
Once I met the previous owners, I began negotiating terms. Since they were offering owner financing well below market both on the rate as well as on the sale of the property, I did not haggle much on the sale price. There was plenty of meat on the bone.

How did you finance this deal?

The previous owner offered seller financing. We negotiated a 5 year term but on an 30 year ammoritization. I also negotiated an interest rate of 5%. The only downside is there is an early payoff penalty in the first 12 months of 4%, but there is plenty or equity to draw on in a BRRR strategy to cover that or just wait until next spring and refinance at that time.

How did you add value to the deal?

I renovated the unoccupied side. We put in all LVT flooring throughout the 1000 sq ft. unit, repainted, all new lights, outlets, switches, appliances, blinds, knobs, and counter tops and sinks. Aside from a termite remediation, everything was cosmetic and relatives easy to remodel.

I plan on renovating the other side when the current tenants move out. After some lessons, I believe I can shave off a month of time and about 30% in costs the next time around.

What was the outcome?

As a result, I put in approximately $50,000 in cash into the purchase and renovation of this property. Now that we are 100% occupied and adjusting for Mortgage, CapEx, Repairs and Maintenance, Insurance, and vacancy (and Property management expenses) we cash flow $800/month.

This will yeild us just above 19% Cash on Cash return in the first 12 months. Additionally, we have added $70,000 in equity with the renovations and proper management.

Lessons learned? Challenges?

So, I learned a great deal with this.

First, as has been said many many times. Real estate is about relationships. This deal found me because of the people I knew and spoke to. Had I not spoken to folks about my real estate plans, this deal would have never found me. Additionally, I leaned on several other relationships to help with the renovation.

Thinking deeper into this, that really is the only REAL lesson learned. Everything else is secondary to that.