4/4 duplex Hold turned Flip

[Timothy Smith]

Investment Info:

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

Purchase price: $68,000
Cash invested: $35,000
Sale price: $134,000

4/4 duplex in stable Class B-/C neighborhood. Bought it off-market, updated all the windows, kitchens/baths, fixtures, floors, cosmetics. Rented each unit for $975 and $875 to long-term tenants. On paper this was a home run in every way, but we decided to sell and focus our energies on opportunities closer to our neighborhood and properties without a crawl space! This was purchased as replacement property in our first 1031 Exchange, so we are now identifying property to replace this one.

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

This was the first property we bought after learning how to formally analyze NOI, financing, and contracting the entire rehab. The cash flow and debt service coverage was great.

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

This deal was brought to me off-market by a savvy young agent wanting to build a relationship. I was not familiar with the area but did some quick research and knew that it could be in the path of progress, especially with a new Tesla battery-manufacturing plant less than a mile away. The seller was out-of-country, and was tired of dealing with managing it from across the border. There was a long-term squatter in one unit that was rehoused by the seller's agent, and the other unit was vacant.

How did you finance this deal?

Commercial construction loan with a local bank.

How did you add value to the deal?

Fully rehab of the kitchens and baths, new floors (LVP and refinishing wood floors), paint, fixtures, and cosmetics.

What was the outcome?

This property cash flowed roughly $800/mo after expenses, which for an all-in of $105K was pretty good. The real value of this property was that it carried the holding costs on two other rehabs, and appreciated over 30% in two years. We sold it after holding for two years and will be exchanging for 1-2 more rehab projects that will be worth at least double what this property was worth.

Lessons learned? Challenges?

Lesson learned: don't get involved in inter-house civil issues. Tenants did NOT like each other, and I managed to get involved. This was also the only time I used a leasing agent, rather than advertising and screening myself. The tenant selected did not treat the property or neighbor with respect, though paid in full and on time. I also learned that crawl spaces suck.

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

Yes I did. The lender we did this with has now financed 3 more rehab projects, and will most likely be doing our next 2.