Investment Info:

Large multi-family (5+ units) buy & hold investment in Sioux City.

Purchase price: $48,500
Cash invested: $28,000

This was a small multifamily deal, 4 unit conversion, that was in an extremely distressed condition.

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

At this point in my life all I wanted to do was get into the game of real estate. I didn't care what the opportunity was as soon as it was presented to me I was going to jump on it if the numbers made sense. I was definitely nervous because the property was extremely distressed but I saw the potential when I found out we could add another unit and use the banks money to renovate the property. Plus it helped that I whole heartedly trusted my friend who brought this deal to me.

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

A friend of mine brought this deal to me after he had negotiated to purchase price down to $48.5 with and additional $40k that the bank was going to require us to get in order to fix up the property. He asked me to go 50/50 with him because he was not able to put 20% down for the purchase price and line of credit at that time. So I took him up on the offer after I looked through the inspection report and walked through the property.

How did you finance this deal?

We got a commercial loan and had to put 20% down for the purchase price and the line of credit. We ended up having to bring $14k each to the table. So in order for me to come up with my part of the down payment I used every single dollar my wife and I had saved, which was about $7k, and then went to the bank and got an uncollateralized line of credit for $7k and used every penny of that to complete my $14k. I used our property line of credit to pay off my personal line of credit after we closed.

How did you add value to the deal?

We added value buy replacing the roof, adding a unit into the basement, getting better tenants in, and increasing the gross rents from $1600 per month to $3250 per month.

What was the outcome?

We are still holding this property, But after 6 months of holding it we were able to refinance at a value of $175K and were able to pull out about $44k with which we used to buy a 15 unit apartment building with another partner. We reinvest all of our cashflow back into the property and are thinking about selling in 1-2 years to pull out the rest of our equity.

Lessons learned? Challenges?

The main challenges we had was managing the property manager and contractors. The main lesson I learned was that investing in real estate is not an easy walk in the park but if you are able to increase the revenues coming in like we did it can have a powerful domino effect when building an investment portfolio.