Owner Financing and JV with GC Leads to 68% CoC Deal

[Roy Assaf]

Hey, BiggerPockets community,
I’m back with yet another success story from my company, NHD Capital.

We normally don't buy deals off the MLS, but this one made sense for a couple of reasons. One, it's located in one of the areas where we acquire our investment properties. And two, it falls under one of our business models—buying two to 30 units, fully rehabbing them, leasing them out, and selling within a few years.

We bought this duplex for $95,000. After negotiating with the owner to carry a note, we came to an agreement that we would put down $30,000 and the owner would finance $65,000 for 18 months at 5.5% interest, with quarterly payments. We decided to use our own money, and we invested $35,000. That’s $30,000 for the down payment and a $5,000 real estate commission for the agent who brought us the deal, since the seller didn’t agree to pay any commission after we negotiated the price down.

We closed in late February 2020. The property was vacant, had major termite issues, and required a gut renovation. We brought in our main general contractor and offered him a joint venture where he took on the rehab costs and would get paid when we sell, plus a percentage from the profit. He agreed, we signed rehab and JV agreements, and he and his team went full steam ahead.

Unfortunately COVID-19 began a few weeks later, and he had to pause the work. He resumed in early May, got everything done on time (as he always does), and by mid-June we had a beautifully renovated duplex ready for rent. We prepared a before-and-after time-lapse video for our marketing materials and signed an agreement with one of our property management companies in the area. They had so much demand for rental units at the time, especially newly renovated ones, that they leased out both units in a week for $975 each.

We wanted to have six months' seasoning to show a buyer a stabilized P&L. We did that and put it on the MLS with our in-house brokerage. The same real estate agent who found us the deal (and is part of our team now) also brought us a cash buyer for $160,000. After paying off our note, our contractor, the closing costs, and a $4,000 commission, we netted $23,913. Our initial investment was $35,000, so our cash-on-cash return was 68.3%.

We enjoy these types of deals because we have built the right team on the ground, primarily our contractors and property management companies, which makes the process effortless and enables us to work on several deals at the same time.

Similar to this deal, we are now working on six units and 14 units that we acquired vacant last year and fully rehabbed them. We are stabilizing as we speak in order to sell them later this year. I’ll keep you posted on those soon.

I hope this deal can motivate investors out there to negotiate with sellers to carry notes and with joint venture contractors. You can then execute deals with not much money out of pocket.

Thanks for reading,

Roy