5 unit building - leveraging equity to buy additional property

[Juan Calles]

Investment Info:

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

Purchase price: $346,500

This is a buy and hold 5 unit building. I purchased the property from a family, whose dad passed away. Since the dad was the owner and the 2 son's did not want to be landlords they were happy to sell the building. This was in 2013 when properties were a still little difficult to sell due to the financial crisis. There was not much competition and the building was cash flowing about 7.5%; however the owner has not raised the rents for about 8 years.

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

The cash flow was ok; however there was room for forced appreciation as well as passive appreciation (the property was well located in a busy shopping district).

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

I was able to find this deal through loopnet (I know ..... the only time that has happened in my life). I called the agent and they were getting very low offers. I decided to look at the building and offer about 10% less than asking, which turned out to be better than other offers. At the end we settled at 346,500, with no major surprises during the process

How did you finance this deal?

This was a 30 year fixed/5 year adjustable rate plan with 25% down.

How did you add value to the deal?

During the negotiation process we were still about 10K apart. Since the agent was representing myself and the seller I told the agent I would chip in 5K. I asked the agent to chip in the other 5K (coming from his commision) since he was getting both sides of the deal. He agreed and we were able to close.

What was the outcome?

The building was purchased. Using passive appreciation and forced appreciation (raising rents 3% per year) I was able to execute a cash out refinance and I am currently purchasing a 3 unit building with the funds used from my cash out refinance.

Lessons learned? Challenges?

If you really want a deal think about creative ways to stand apart from the crowd and be willing to negotiate within your number goals.