Investment Info:
Small multi-family (2-4 units) buy & hold investment in Milwaukee.
Purchase price: $171,000
Cash invested: $75,000
Purchased our first property as a duplex to house hack with my wife.
It is 3BR/3BR Brick Style built in the 1950s/1960s. Our initial plan was to do normal long term rentals. We wanted to fix up the lower unit and live upstairs to maximize the rent and quality of renter we could attract. We actually ended up furnishing it to focus on medium term renters with short term filling in any gaps.
Rehab: We had to put a lot of money into the house, more than we initially planned (of course, it was our first!). We had to do 15K on the roof, 10K in new furnaces, 3K in a new water heater. And that doesn't even begin to talk about any cosmetics!
Living room/bedrooms/hallway: Ripped out all the carpet, replaced all interior and closet doors, painted walls, ceiling, trim, refinished the original hardwood floors, and installed new blinds.
Bathroom: Completely gutted the entire bathroom, had to add a new venting kit and bathroom ceiling light/fan combo. We added a new tub, toilet, vanity, mirror, and shelves. We tiled the shower and the floor and added new vanity lights. We got all the plumbing replaced that was visible. We had to get some rewiring done with the wall open as well. The walls, ceiling and trim were also painted.
Kitchen: Replaced the countertop with laminate, added a tile backsplash, and took out the old vinyl flooring and replaced it with a stone LVP. We added a new fridge, oven and made space for a dishwasher. We had to get electrical and plumbing prep work done to ready the dishwasher, and we also got our kitchen sink replaced. We had to get plumbing work done on the kitchen drain. we replaced the garbage disposal, painted all walls, ceiling and trim.
Whole unit: New lights throughout installed. We painted exterior doors that were not replaced.
Overall, we were extremely pleased with the work our contractor did. Its a great looking unit and we were happy to get it rented nearly two weeks after work was completed.
Currently we still stay upstairs. We ended up getting the downstairs rented for $1500 a month. We definitely felt like we undersold our rent price, but we were nervous about vacancy. Getting a tenant in gave us a a lot of confidence to believe in our rental that we deserve more.
Since we stay upstairs, our market rent would probably be around $1100 for a 3 bedroom in its current condition (fine condition, just outdated).
Cashflow with both $1100 rent and $1500 rent is roughly $500 and around 7.2% COC return.
We think we could get closer to $1650 rent for our furnished rental, which would bring us to $650 per month and around 9% COC return.
We did end up getting this loan in early August, so our rate is 5.625%, not great but not terrible looking at current rates (March 2023).
Once we fix up the top unit, we hope to refinance BUT only if the rate is comparable. Otherwise we may just consider HELOC to pull some out and fund the next deal.
We think it would take another 30K to rehab and furnish the upper unit, but if we got again $1650 for the upper unit, we would have cash flow of $900 and COC of 9.7%
I think we did pretty well for the first go around!
What made you interested in investing in this type of deal?
We were interested in investing in multifamily properties, and were looking for a house hack that had some potential with low downside.
How did you find this deal and how did you negotiate it?
MLS, and I didn't negotiate as well as I should of. We did get a few repairs like GFI outlets and a Roof patch but nothing significant.
How did you finance this deal?
5% down Freddie Mac residential loan.
How did you add value to the deal?
We renovated the entire downstairs which boosted its market rent. We furnished it to allow us to rent to travelling 30+ day renters.
What was the outcome?
So far so good, we are renting to a medium term renter (travelling nurses) with 0% vacancy so far (booked since New Years Eve, two weeks or so after our contractor finished)
Lessons learned? Challenges?
Too many to count.
It definitely motivated us to look for BETTER deals to give us even more room for error (or profit).
Setting contractor expectations up front is something we want to do next time. We never understood when we would get our project done. We also had some contractors delay us by not communicating and rescheduling (after we had to bother them).
Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?
Carol Ford from Waukesha State Bank made the loan process very smooth!
