All Forum Posts by: Jacob Price

In an effort to up my BP posts, I want to start documenting my first duplex purchase. So here we go...

I want to preface this post with my almost deal. My original first deal was going to be a much bigger apartment complex that I had found. It was 10 units and the rents were low. We were going to be able to increase all the units by about 50$ or so, based off the market in that area, which would have made the property bring in a little over 40k grossly and based off their expenses, which were 11,086.44, the net profit would roughly be 29k. This isn't including any mortage on the property, but the returns looked pretty decent considering it was 200k. The individual pushed for less than a week for closing and as it was our first deal I wanted to check out more on it before closing. Anyways, it was a blessing in disguise. Here is the deal I ended up with. 

Enter Dumpy Duplex

The deal

After a few months of looking daily I found a duplex that was in a nice area, but was for lack of better words, a big turd. I went and did a drive by, then contacted the listing agent to get a walkthrough. At the time the lower unit was rented, and it wasn't a good situation, let's just say I didn't want to inherit the tenant. I brought my partner with me when we met with the agent. My partner, who is my father, is a contractor that I had worked with since I was able to hold a hammer, he also was able to assess what all we were going to need to repair and actually was pretty good at estimating costs as it turns out. The property was initially listed for 79k, but after only a short period was dropped to 63k. I am a numbers guy, so I ran the numbers and came up with 50k as where we needed to be to have a good deal. My parents had their doubts about the offer, but that didn't stop me from offering it, and well it turns out that the sellers were in a terrible situation and accepted the 50k offer.

Closing: March 3rd

After closing we had paid 50,333.39.

We had a few major changes to the property that we anticipated and have almost finished.

So far our renovation has consisted of: 

• New windows
• Siding
• Converting from Baseboard/furnace heating to central air
• New Roof
• New electrical
• Almost all new drywall
• Re-did some old plumbing to pvc
• Converting both apartments to 3 beds

There will be more, but this is what we have accomplished since our purchase. I'm very grateful that we have been able to get great deals on a lot of what we have done. So far the renovation has cost about 24k if I round up. We still have probably another 6k to go. 

Financing

Briefly I'd like to talk about how I was able to finance this deal. We were able to use equity from my parent's home to completely finance the deal. We went in half and half, granted they obviously have helped a little more than half on the financing end. Our bank will give 80% of the ARV, so in 5 months from now we will refinance the duplex and get their cash back. We originally set a budget of 25k, so everything over that we have agreed to pay out of pocket.

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I will have more to update this soon, but current outlook is to be done sometime in May. I actually may already have the tenant for the lower unit, which is great! The outlook based off the market and other renters in the area I have spoken to is that we will get 700$ for the lower unit which is slightly larger and 625$ for the upper unit. Both units actually come with a storage building, both of which are insulated and have electrical. The tax assessment, which is actually based off a single floor according to the court, is actually 73k. Insurance covered us for 190k replacement cost... We expect ARV to be about 120k+ being conservative after we are done.

We have put 15+ hours in every weekend, but it's been a blast to learn and dive in. I will try to keep this updated, and I probably will have to edit this post at some point as I kind of rambled, but I just really wanted to get started on hopefully what will be one of many BP posts! 

Also, as a side note tip for those Lowe's shoppers. I can't even tell you how much we have saved by using coupons we bought on ebay, 50$ off after 250$ etc. I'd highly recommend you check them out if you use Lowe's as your primary go to for building supplies. 

Thanks!

So we did it! We are closing on our first property! Well let me clarify, I am. So here's the deal, after reading some about LLC's I recognize their pro's and con's. For me I am 21 and won't have but this one property for now, so I wouldn't need an LLC based of my readings as I'm young and fearless. On the other hand my father, who is my partner, now owns 2 homes 2 rentals and this will be his 3rd rental. Should we do an LLC to protect him or is it still not necessary at this point? Thanks!

If it is financed, you could possibly see higher returns due to leverage. When you look at ROI with financing, you should think of it as I put x amount in and get x amount out. For example if you only had to put 20k down on a 100k property and then flipped that property and sold it for 140k then you essentially achieved 20k minus your finance as profit. That's almost doubling your money! However, should you have purchased the 100k property with cash then you would only have received 40k profit minus expenses and such (Keeping it simple) which is only 40% return.

On your initial analysis on the property? No, because there's no way to know really. Not accurately anyway. 

 Thanks Brian, 

Yeah, I tried to be pretty conservative as it is my first deal. I have his operating statements from the past few years, so really the only extra expenses will be any improvements we plan to do and the note. 

 Should they not want to do owner financing what would I be looking at doing. I'm meeting with them tonight, so I will discuss that with them, but they seem to want cash based off previous conversations. In that case which route would you turn? 

Think of closing costs as an addition to the cost of the property. For example if you purchased a $100k home and closed for $5k you would think of the home as $105k. Of course closing costs can vary so it isn't quite as simple as a flat %. The ROI calculation changes between cash and traditional financing in a few ways. First purchasing with cash allows you to avoid the interest that comes with traditional financing, however your cash on cash return will not be as high seeing as you aren't using the banks leveraging ability (or any lender). I'm not sure how to answer your last question, but I hope some of what I said helps!

This may be rudimentary, but there is a lot out there, so I wanted to have some other opinions. I've found a 10 unit that is selling for a fantastic price especially considering it already has cash flow, it's fully occupied, and everything has checked out. The owners have had it in their business for a long time and are just ready to retire. My partner and I have enough for 20-25% down, and were wondering which type of loan would suit us better as we would still need 160k or so. Would you try to do a commercial real estate loan or conventional? Going to chat with the bank tomorrow and wanted to have my head on a swivel prior to having that chat. Bigger Pockets has got me this far, don't fail me now!