Totally Normal Borin 1970s Duplex BRRRR

[Ashley Thomas]

Investment Info:

Small multi-family (2-4 units) hard money loan investment in Stockton.

Purchase price: $242,000
Cash invested: $38,000
Sale price: $400,000

1970s duplex in deplorable condition, but with dual pane windows and in good exterior condition, near highways and on a tree-lined residential street: complete rehab required in one unit and selective rehab in the other. I financed the deal with hard money, replaced the roof, repaired perimeter fences, and replaced the kitchen cabinets, lighting, appliances and flooring. The first unit took five months and I did it primarily myself; the second unit took a team one month to turn around and rent.

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

Rental income. I rent to travelling professionals who stay 3-10 months.

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

I look at local small multi-unit listings every single day and have bought two after precipitous price drops. The seller dropped her price suddenly by $50K in frustration at the lack of interest in a property inhabited by her drug addict brothers. I was among many bidders but had visited/analyzed the property in detail, did not have inspection contingencies, and won at $12K above the newly dropped asking price, seller to pay $5,000 closing costs.

How did you finance this deal?

I financed the deal with 25% down and hard money, with a $32,000 rehab budget.

How did you add value to the deal?

I have a fair amount of rehab experience and do the flooring and much more myself, so my budget was maintained. I am not afraid to market my properties and make use of several free and one furnished rental web site for this property. I had the seller pay for a home warranty that covers HVAC and it paid off generously.

What was the outcome?

This location rents itself and gross rent is $3150/mo. Expenses are $450 in water/garbage/wifi/gardener/home warranty/advertising, plus mortgage.

Lessons learned? Challenges?

At the time this was my only project in an area that was new to me, so I had time to do much of the rehab myself, taking my time and doing it right. As I learned which tasks I needed to delegate to the more skilled workforce I built a local team who could help me on later projects. I also learned to set strict limits as the previous owners showed up regularly to ask for favors. I refi'd with a conventional loan after the rehab.

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

Unfortunately my hard money lender, who I used for a future deal, too, is no longer in business after Covid-19. However I see similar deals and have spoken to some knowledgeable lenders with interesting programs that I'll likely use in the future.