7 Unit Building - Leveraged to further professional career.

[Juan Calles]

Investment Info:

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

Purchase price: $285,000

This is a 7 unit building that I purchased in 2005. There were a lot of repairs needed, so I prioritized the repairs, which took me about 2.5 years. Since I purchased the building with a 15 years fixed loan the cash flow was not ideal (i.e. 5%); however the previous owners had not raised the rents for about 7 years, so I slowly started to increase rent. Fixing leaks and having a supervisor onsite help me reduce expenses and maintain the building up to code.

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

This was my first deal. I remember my mom telling me about a friend who was looking to sell her building and at first I thought the deal was to big for me; however, I looked at the location, ran the numbers, estimated repairs and the deal made sense if I factored in moderate rent increases.

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

The seller brought the property 3 years prior at a sheriff's sale and did not want to deal with the repairs anymore. This was was my first deal I used comps from like properties that sold. It was pretty straightforward as my mom had a personal relationship with the seller, so the seller was comfortable with the processes and the agreed price.

How did you finance this deal?

Conventional 15 year fixed loan with 25% down. In retrospect I would have done a 30 year / 5 year adjustable loan; however, it turned out to be a great situation. I can explain that further in the "What was the outcome?" section.

How did you add value to the deal?

Frankly, since there was already a strong personal relationship the seller was comfortable with the deal.

What was the outcome?

I purchased the 7 unit building on a 15 year fixed loan. About 12 years into the loan I was able to execute a cash out refinance to buy shares of the company I work for, which made a minority owner and partner*. This turned out very well as I was now getting yearly profit distributions and all partners were giving a 15% salary increase a year later. It only took 2.5 years to get the value of my investment back and I did not have to sell the property. It has been the best use of my real estate.

Lessons learned? Challenges?

Patience, being ready for opportunity and leveraging every corner of your network.

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

This was a direct buyer and seller deal. No agents involved.