Skip to content
×
Try PRO Free Today!
BiggerPockets Pro offers you a comprehensive suite of tools and resources
Market and Deal Finder Tools
Deal Analysis Calculators
Property Management Software
Exclusive discounts to Home Depot, RentRedi, and more
$0
7 days free
$828/yr or $69/mo when billed monthly.
$390/yr or $32.5/mo when billed annually.
7 days free. Cancel anytime.
Already a Pro Member? Sign in here

Join Over 3 Million Real Estate Investors

Create a free BiggerPockets account to comment, participate, and connect with over 3 million real estate investors.
Use your real name
By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.
The community here is like my own little personal real estate army that I can depend upon to help me through ANY problems I come across.
Real Estate Deal Analysis & Advice
All Forum Categories
Followed Discussions
Followed Categories
Followed People
Followed Locations
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback

Updated about 3 years ago,

User Stats

97
Posts
90
Votes
Melissa Dorman
  • Real Estate Broker
  • Portland, OR
90
Votes |
97
Posts

How I got a 4 plex in Portland for Free!

Melissa Dorman
  • Real Estate Broker
  • Portland, OR
Posted

Investment Info:

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

Purchase price: $1,225,000
Cash invested: $100,000

I call this my "Freeplex" because the cash back I received from my commission as an agent ($30k) and tax savings from a cost segregation ($70k) meant I didn't pay a dime for it. Check out the details below on how I got there....

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

I wanted to buy a large 4 unit to do a cost segregation on to create tax shelter (look it up on costsegregationservices.com). The cost seg resulted in $70k back in tax savings, which was more than my down payment. I was intrigued by the size of the property, great location, and upside once I got the building performing and renovated.

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

One unit was vacant (which I could occupy for my loan). During the inspection period, I discovered 2 of the other units were 4-8 months behind on rent. I negotiated the seller pay cash for keys to one unit ($9k) & I got the other non-performing tenants performing 2 weeks after closing. Additionally, I negotiated that the seller do a new exterior paint job ($20k), $6,500 in landscaping, and $5,700 in deck work to transform the exterior to attract new quality tenants.

How did you finance this deal?

Purchased with a conventional loan at 80% and seller financing at 15% with 5% down (No PMI!). The seller is carrying 15% for 10 years at 5%, interest only or more payments to support cash flow.

How did you add value to the deal?

Once the non-paying tenants moved out right after closing, I renovated their 5 bed 3 bath (2,600) sqft unit and got it rented up for $3,125. I spent $40k on the renovations and it turned out great! Additionally, the value I added was thoughtful win-win negotiation as the agent to ensure all parties walked away happy.

What was the outcome?

With $100k total invested between down payment and renovations, it now cash flows $1,850 each month (after PITI and cap ex etc). Since my cost seg will give me $70k back and my commission was $30k, I am ZERO dollars into the deal and cash flowing. I also discovered a historical lot line between the two buildings, which means I can divide the 4 plex into 2 duplexes and net another $300k or more down the road.

Lessons learned? Challenges?

It is extremely hard to get a loan on a 2-4 unit above $1,050,000 (conventional loan limit). The week of closing I thought it would all fall apart because the lender couldn't get PMI for the loan. Fortunately, the seller was willing to carry 15%. I highly recommend involving the seller to make the deal work. I originally thought it would cost $15k to renovate the remaining unit...but turns out I should 2x my budget and add some more! Everything is always more expensive than it appears at first.

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

I worked with Umpqua Bank on the the conventional loan. They have an amazing 5% down owner occupied loan. It allows you to received 3% back in credit from the seller, which you can pay all the PMI upfront at closing. I didn't have any PMI, so I exchanged the credit for repairs with the seller so I could still use it.

Loading replies...