Creating value from Distressed property

[Elliot Rivera]

Investment Info:

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

Purchase price: $220,000
Cash invested: $85,000

Distressed quad in Pine Ridge, purchased to renovate and bring rents up to market rates. Renovations ongoing (complete as of 4/15/2021). Unit 1 rented at $900/month from former rent of $575/month (Units 2, 3 and 4 pending). Estimated completion and full occupancy as of 5/1/2021. This would achieve Cap rate of 12.4% with cash on cash return of 13.8%. Property was over budget but rented at above conservative pro forma estimates.

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

Our firm specializes in finding smaller multi-families that are either under performing market returns or have considerable deferred maintenance.

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

Deal was found from realtor owner that brought up property after another deal we were negotiating with him fell through because we could not come to terms.

How did you finance this deal?

Conventional financing. 30 year fixed, 25% down.

How did you add value to the deal?

There was considerable deferred maintenance. But the structure was sound so it was mainly cosmetic upgrades and a roof. Units were gutted (flooring, fixtures, paint, bathroom and kitchen remodels), we also repaired and painted the exterior of the building.

What was the outcome?

We have rented the first unit already at $50/month above our estimates with pending applications in on the other units. Property IRR will finalize in the 16-20% range.

Lessons learned? Challenges?

Prepare and estimate worst case scenario always! Delays and surprises are inevitable.

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

Dada McGlynn has been my RE agent in Gainesville area for a few years. Her husband Alan is also an excellent resource for funding. Couldn't recommend either more.