Investment Info:

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

Purchase price: $740,000
Cash invested: $148,000

Two side-by-side multifamily buildings, each containing six units (twelve total) with one bed and one bath. Section 8 eligible, but no mandatory minimum.

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

I was struggling to find good deals on SFHs, duplexes, tris, and quads because I was competing against a wider group of investors (homeowners, house hackers flippers, BRRRRers, and flippers) who were either shopping all cash or had owner occupancy financing. Couldn't compete with those terms and still achieve my minimum requirements. So I decided to jump the hurdle and took some time to learn the commercial financing component so that I could move into larger multifamily properties.

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

This property was initially listed on the MLS, and I saw it on the first day, but it sat for almost a month before the seller withdrew the listing. Right after the seller withdrew, I asked my agent to send over a soft offer at 25% below list. We exchanged 5+ counters before ultimately landing on a middle ground appx 15% below list price. I explained some of my minimum requirements (10% COC, 8% cap rate, etc) and provided multiple BP reports to the seller along the way to justify our offers.

How did you finance this deal?

I was working very closely with a regional bank who pre-approved me as an out of state investor prior to writing any offers, but they backed out due to an "internal policy change" two weeks after getting the property under contract. I scrambled to find a national bank to act as a backup lender and asked the seller for an extension, which they graciously provided. Ultimately got better terms with the national lender than the regional bank with a 5yr note on a 25yr amortization schedule.

What was the outcome?

Purchased the property 15% below list price and expecting solid returns, especially after splitting out utilities and raising rents to market rates.

Lessons learned? Challenges?

Ton of challenges, but each lesson worth the hassle. First, adjusting strategies to move from one-to-fours to larger multifamily was a great decision to eliminate some competition. Second, commercial lending isn't as complicated as it seems and in many ways easier than conventional because less regulation. Third, working collaboratively with the seller proved to develop a stronger relationship than had we been competitive/combative, which helped us navigate big maintenance and vacancy issues.

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

I worked with a local real estate agent (Zac Elliott with Root Venture Realty), who really helped find the right property and then navigate the entire due diligence process. I also really like my property manager (Jeremiah HInes with Flow Property Management). Met them both in person when I flew in for the inspection, and would highly recommend both.