My first 4 plex part 1

Finding the Deal

The cool thing about being a realtor is that I am always on top of inventory while searching for homes for clients. I had an amazing Veteran client who was looking to buy his first multi family unit and utilize his 0% down loan. During that search I saw a property on the mls that might be a good fit so I drove over there and realized that he would be WAY over his head if he bought it, but it could work for me! 

 His VA loan would never be able to approve a property in that condition. One of the units was vacant and destroyed with a hole in the ceiling from rain damage. Another unit had sewage backing up into bathroom and hallway. Also he didn't have the budget for remodeling the property even if he bought it using hard money and refinancing later.

So I said, why not - Ill give it a shot. It is 4 units, 2 bed 1 bath each with 700 sqft listed originally at $375,000.

Deciding what to offer

1. Find the After Repair Value & Market Rents

The first thing that I do to find out what to offer is to see what it would be worth once it was all fixed. The way I do that is by pulling "comps". I pulled a list of 4 plexes that sold with in 1 mile, in the last 6 months, with similar unit mixes, that were remodeled. I saw that the range was between $550k, $605k $625k. The only issue is that the two higher ones are in a "historic district" so I stayed conservative at $550k ARV. 

Market rents for a 2 bedroom were pulling about $1000 to $1200 each so I estimated $4000 in gross rents once remodeled. (My principal, taxes, interest & insurance is only $1900) 

2. Calculate REHAB

This one can be tricky because of unseen issues as well as lack of experience estimating costs. But we have flipped dozen of mobile homes and houses at this point and I help get clients get quotes for things all the time so we can get a rough idea.

2 Roofs - $10,000

4 AC Units - $20,000

replace 2 Sewer lines - $10,000

Paint the exterior - $5000

Full gut and remodel 700 sqft - $48,000 (12k each)

=$93,000 ...so i estimated a rough $100k 

**We later discovered we need to replace all the electrical in 2 units ($4400), do landscaping ($10,000) , and replace a 3rd sewer line ($5000), and some miscellaneous costs**

3. Find Max Allowable Offer

I used a hard money calculator to plug in the numbers along with what my hard money costs would be if it took me 6 months to remodel to see what I could offer. I typically try to make a spread of 10% profit of the ARV, in this case $55k after all costs considered. My max allowable offer came out to $360k. But of course, I wanted to see if I could get a better deal and decided to throw out a crazy number and see if it stuck. It was listed for 39 days and still on the market after all. 

I called the realtor and said, I am interested in buying your clients property. I will buy your clients property with hard money and close in 7 days. I wont do a formal inspection or ask for any repairs. Would your client consider $315k? (it was listed at $375k). He said that it was 60k below what they listed but they just fell out of contract and he will ask his client and get back to me. 

That evening I got a call saying YES! He will accept it!! 

We closed 12/10/2020 - it was the best Christmas present ever. haha 

Stay tuned for the next post on the nitty gritty details on how we informed existing tenants that their rents will go up, hiring and firing contractors, and how not to fight with your spouse/business partner (we did plenty of that!