All Forum Posts by: Melissa Dorman

@Luke Carl interesting. People say that about Portland all the time as well, but I’ve done well here. Where do you invest, if not in Nashville anymore? Are there areas outside that still show good cash on cash returns?

Hey, I’m starting to explore the Nashville market to expand my portfolio. I’m looking to acquire a 10-20 unit complex in or around Nashville. I’m wondering for various property classes (A,B,C) neighborhoods/tenant quality, what can you expect to see in cap rates? And what is the range of price per unit? Would love to hear about other people’s experience buying multi family in the area. Thanks!

In December of 2016 I sent out 500 direct mail letters to duplex owners in SE Portland. One of those letters landed with a couple in Woodstock whose family had owned a duplex for 70+ years. With almost no knowledge of values or negotiation, I just began spending time with the couple, learning about their desire for selling and discussing my desire to buy. At the time, I ended up buying a different duplex because they just were not ready to sell. About a year later, I was in the midst of a major life crisis; My dad had just passed away and shortly after my marriage was abruptly ending. Life felt totally out of control. That's when I got a call from the sellers. The wife said, "Okay, we are ready to sell."

I had no money. No plan. And very little mental strength to put a deal together at the time. When it comes to getting a deal done, sometimes 50% of a deal done right is better than 0% of a deal that falls apart. That's when I called Mike Nuss from RareBird and told him about the deal. This was a duplex on a corner lot with a large back yard. We looked it over and realized there were 3 historical lots of record; it could be split into 3 total lots and we could sell two of them and keep the duplex. I didn't have any experience with lot confirmations but I had spent 2 years nurturing this relationship. Mike and I met with the couple and put together a deal that worked for us all. It was the price they wanted, $550,000, and the slow closing timeline we wanted, to get the lot confirmation plan approved by the city prior to closing.The plan was for RareBird to buy the property with cash first and then RareBird would sell me the duplex at a discount once the lots were confirmed. RareBird would make their split in cash at the sale of the lots and I would make my split in equity with a discounted purchase price of the remaining duplex.

I managed the relationship with the sellers and raised some of the private money. Mike managed the lot confirmation and some repairs the city required. He also brought the majority of the private lending. In the end, we sold the lots to a developer for $289,000. After some holding costs, renovation costs etc the project created a net profit of over $200,000. We determined the value of the remaining duplex was $525,000 so Rarebird sold me the duplex for $425,000. I used a conventional loan and it now cash flows $500 a month.

I'm grateful for the partnership I had with RareBird to make this deal work. 

Mindset tip: If you find a deal, the knowledge and the money will follow. Focus on finding the deal and nurturing seller relationships over a long period of time. Some sales will happen quickly and others will be a slow dance. Patience is key.
My favorite moment of the entire transaction was a few days before closing when the seller called to tell me this, "These past 2 years, I have received many offers from other investors. Each time I would tell them, 'No, I already know who I am selling to; it's Melissa Dorman. We have been slow dancing for a long time."

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Portland.

Purchase price: $706,500
Cash invested: $35,250

This is a single family house and a duplex on the same lot, purchased as a "triplex". There is a historical lot line between the two buildings that can be divided using a lot confirmation. I will renovate the single family home, divide the lot, and sell the single family in a couple years. I will keep the duplex in my portfolio. Project should have a net profit of $250,000 after the sale.

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

Originally I was simply looking for another owner occupied, low downpayment, small multi-family project. Based on rents, the property paid for itself with minimal cash flow. However, the ability to do a cost segregation and my 2.5% broker earnings offsetting my 5% down payment, made it a 1,000% return in the first year. Furthermore, during due diligence, I also discovered the historical lot line and the true upside of the deal. This turned a "good deal" into a "home run".

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

I found it on the RMLS. Based on my qualifications at the time, it was one of 3 properties I could buy that had sufficient rent and a low enough price.

How did you finance this deal?

I used a low down payment portfolio loan with a community credit union that required owner occupancy.

How did you add value to the deal?

I will do $50,000 of renovations on the single family and confirm the lot for $5,000. The renovations will include adding a bathroom to the master suite upstairs and simply adding french doors to an existing room to make a 3rd bedroom. I will also update the kitchen and bathroom in current existence. Then I will resell the single family for $550,000-$600,000 in Spring of 2022. Since I am living here for 2 years, I will pay no capital gains on the $250,000 projected net profit.

Hey @Rocky Pe Benito, great question. All my properties have equity and cash flow, about $100-$200 per door. You still have to buy right in an appreciation market. It's just for every million dollars of real estate you buy in an appreciation market means you are gaining equity at $50k-$60k a year. You can't see that kind of wealth building in cash flow markets. The strategy here is to build enough equity through appreciation and then transfer that equity to a cash flow market. In other words, using simple math, you can use $50k as a down payment to buy a million dollar fourplex in Portland (5% down portfolio loan) that cash flows $100 a door. In 5 years, you will have made $250k in appreciation. Then take $250k and buy property in a cash flow market where cap rates are much higher. Or you can use that same $50k and buy a single house in a cash flow market and maybe make $10k a year in cash flow... maybe. After 5 years, you have $100k ($50k cash flow and a $50k property). Cash flow in Portland is more like an insurance policy. You need it in every property but it's not why you buy it. You need it to ride out any down turns to ensure you don't have to sell if the market drops. 

Hey @Rocky Pe Benito, yes I will continue to invest here. LA has a 3% rental cap law. Here is 10%. I plan to do some larger apartment buildings out of state down the road but Portland builds great equity. It’s a fantastic appreciation market. My goal is to 1031 about 25% of my appreciation market portfolio into a cash flow market in 2 years to achieve financial independence. It’s a great strategy for retiring young. 

@Nick Giulioni I’ve been in Portland about 3.5 years. I’ve bought four multi families (10 doors). I’ve switched from social work to full time real estate broker and investor. I’m leading the top producing team at Living Room Realty, which is the top producing brokerage in central Portland. Life really turned out well after I moved up here. Oh and @Neal Collins and I are good buddies. I see he is on this thread too. Portland is an amazing place to invest and build community. 

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Portland.

Purchase price: $730,050
Cash invested: $500

This was my first seller-carried purchase. I negotiated a delayed payment to rent out 2 vacant units and got a second mortgage for the downpayment and only had to pay $7,000 at closing for closing costs and remainder down pay. I leased up the vacant units and collected rent a couple months. By the time my first mortgage bills came, I was only $500 out of pocket. There are a few other tools I used that I can share over a cup of coffee. Great building and I am still close friends with the seller.

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

Seller financing and cash flow on interest only payments.

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

Cold calling and befriending the seller. I negotiated it over a cocktail or two.

How did you finance this deal?

Seller financing and a small second mortgage for $10,000 for the down payment.

How did you add value to the deal?

I helped the seller avoid capital gains and net more over the course of the seller financed loan than he would if he got an all cash offer. I property manage and he gets a great check each month, without doing any work.

What was the outcome?

I got a triplex for $500 out of pocket... and a great friend for life (the seller).

Lessons learned? Challenges?

It's important to do a reconveyance on your trust deed at the time of signing. This saves you costs when you go to reconvey later.

Investment Info:

Small multi-family (2-4 units) buy & hold investment.

Purchase price: $320,000
Cash invested: $20,000

My first purchase with an FHA loan. I sent letters and found it off market. I bought it and put in $20,000 to renovate the unit I would live in. It appraised for $50k more than I paid, the day I bought it. It's now fully rented and worth approximately $450,000 with a GRM of 15 and supporting comps in the area. That gives me about $100,000 of profit, if I were to flip it and sell it myself.

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

Bigger Pockets Podcasts.

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

I sent 500 direct mail letters to multi-family owners. I negotiated directly with the seller, who was out of state. I covered closing costs and she paid the tenant relocation costs, so I could owner occupy. I negotiated by not asking for any repairs and making sure it was a smooth transaction for everyone.

How did you finance this deal?

FHA loan.

How did you add value to the deal?

Renovated the kitchen, bathroom, flooring, and painted throughout the unit. Cost about $20k to do.

What was the outcome?

It appraised for $50,000 more than I was paying and has $150k of equity today. If I did it as a flip project, I would have made about $100,000 in profit. Instead, I hold it as a rental and have great tenants. It cash flows a few hundred a month.

Lessons learned? Challenges?

Direct Mail marketing works. I need to quit my day job as a social worker and become full time in real estate.

Check out rarebird investor group. They meet the 2nd Thursday of the month and it has accelerated my investment learning curve tremendously. Google them and hope to see you at the next meeting :)