Case Study: 2/1 Buy and Hold Deal

Here's an example of a recent deal we did in the Quad Cities. I will walk you through the entire deal from sourcing the deal to turning it over to our leasing agent and property management company. The Quad Cities is a tertiary market on the Mississippi on the border and IL/IA and our average property value in this market is around $90K. This specific deal isn't a home run by any means, but it should give you a great idea of how we invest in tertiary markets. 

Sourcing the Deal 

Being in the market for a few years, I've built up a solid network and I tend to get several motivated seller referrals per month. I've done this by always giving out referral fees and earning a good reputation by closing every deal we get under contract. Building strong relationships is extremely important in real estate and we got this deal under contract due to having these relationships. We we're able to get this under contract for $32,000 with our normal terms of 10 day inspection period and 30 day close. 

Analysis and Due Diligence 

We generally underwrite our deals very conservatively to account for any unforeseen items that may come up in the construction phase. We came up with an ARV of $70,000, repair costs of $18,000, and with over 20% cash on cash return assuming 80% LTV at 4.5%. We would be totally invested into the property for $50K and have $20K in equity in the property after construction with $250 per month in cash flow if we rent the property for $800. 

Pre-Construction 

Before we closed, our team got all of the bids put together and the total costs amounted to around $16,000 which was lower than what we initially anticipated. The property did not need too much, it was mostly all cosmetic besides a minor plumbing issue and some exterior work in the backyard. We have all of the bids in as soon as feasible so we can get moving on the project as soon as it starts. 

Construction 

Since the work was mostly cosmetic, this project took just 4 weeks to complete. It definitely could have gotten done a little quicker but I stress quality to our contractors so they we can provide the best rentals on the market. We ended up spending around $2,000 on exterior items such as landscaping and garage maintenance. In total, our rehab costs were around $18K. 

Final Inspection and Hand Off

Because we want to provide great rentals to our community, we have a final inspection checklist with our general contractor, our construction manager, and our property manager. The final step was to get everything inspected before the leasing agent takes over. We screen our properties very well to keep the future maintenance costs as low as possible. Because our contractors did such a great job, our leasing agent was able to rent this in 3 days for $850, which increased out monthly cash flow to $290. Below are our final numbers. 

--Gross Rents: $850

--NOI: $522

--Annualized: $6,264

--Purchase Price: $32,000

--Rehab Expense: $18,626

--Total Cash Invested: $50,626

--Appraised Value: $70,000

--After Refi: $14,000

--Mortgage Debt: $2,780.57

--NOI After Debt: $3,483.43

--CCR%: 24.88%

We purchased this property and financed the rehab ourselves, so if we fully leveraged at 80% instead of only what we have invested, we would have been able to pull out $56,000. That's almost $6K more than we invested. Overall, this was a solid deal because the rehab was very simple and the numbers worked well. Our company does several deals like this each month and we are excited to keep providing great housing the our community.