This was our first big commercial property deal with lots of moving parts. We learned a lot and thankfully made it out the other end better off than we when we started. Being a small time investor with limited funds we had to prioritize our strengths and hedge out our limitations when competing with other more savvy investors.

We love investing in the San Lorenzo Valley (Ben Lomond, Felton, Boulder Creek, Brookdale). Our mountain community has many unique properties - this property used to be a small summer resort consisting of 5 small cabins that had been in one family for about 70 years. In the last 15 years or so the property had fallen into disrepair with many of the cabins unlivable, dilapidated, and 100% vacancy.

Our goal was to bring this property back to its former glory while maintaining the rustic community and neighborhood vibe that is Boulder Creek. At the same time we wanted to help provide affordable community housing to locals - we ended up succeeding in both.

Since we live in a such a high cost area (medium home price in the Santa Cruz County, Ca. is $923,065) we required a deal with significant value add potential in order to enable us to refinance our money out at the end. Because of this we needed to find a difficult problem (property) that needed solving - something that would scare most other buyers and part time investors away, low enough on the economic scale as to not attract “big money,” and unique enough to require a more flexible type of thinking. We had to focus on identifying unique strengths that might give us a small but critical advantage over our competition - in other words we needed a niche.

Our niche turned out to be the most common thing about us - our family and the simple fact that we are local to the area. The property was in such bad shape that it would not qualify for conventional financing and as an assortment of summer cabins it was not a typical straight forward multi-family deal. Our familiarization with the area, local contacts, market rents/values, and the community allowed us to build a strong rapport with the seller and present a very competitive and competent offer other investors could not duplicate.

We found this deal on the MLS of all places. The acquisition of this property was less of a negotiation and more of a relationship building opportunity. Since the property had been in the sellers family for over 70 years and had been their summer vacation spot for all that time, they were not simply selling an investment but a piece of their lives. This is a very important distinction that a lot of investors miss - treating sellers of this nature, like dollars and cents investors, is a mistake and likely a big turn off to the seller. Similar to the seller when they first acquired the property, we were interested in purchasing the property for the longevity of our family and a chance to build generational wealth - selling to us was a continuation of the sellers own ethos (beliefs and aspirations) and not just a calculation or monetary gain - this was our key advantage.

The point here is that identifying the type of seller is just as important as making the right offer. With that said, all of this is for nothing if you are not sincere in your approach and honest in your dealing with people. When our 45 day seller-financed offer was accepted it was 15% lower than the other two cash offers.

The seller owner-financed 70%, private money for 10%, and we put down 20%. We were able to lock in a very favorable interest only rate for 3 years with the intention of refinancing as soon as possible. Last month we closed on our refinance, paid the seller off, and pulled out 100% of our money. With lots of sweat equity and help from professionals we more than doubled the properties valuation and now sit at 100% occupancy (the vacancy rate for our area is about 1%).

Relationships are what create great deals. Plain and simple.

*I originally accidentally posted this in Deal Diaries when I meant to post it here.

Jonathan Pflueger

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Our First Commercial Multi-family Success - Doubled Valuation!

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