Investment Info:
Small multi-family (2-4 units) buy & hold investment in Kihei.
Purchase price: $831,725
Cash invested: $85,000
Contributors:
Josh Conlan
First property (hopefully of many)! Three-unit property located in Kihei, HI. All expenses/profit split with my partner Josh and I 50/50. While I live in the unit for free, we are generating a 20%+ "pure" cash flow return, which is net of all expenses and reserve allocations. Josh Dorkin and Brandon were kind enough to join me on inspection day and gave me great advice as they live nearby.
What made you interested in investing in this type of deal?
Always knew I wanted to house hack for my first property. In Hawaii's expensive market it took a little more patience saving up the funds needed for the down payment, repairs, reserves, etc. but it was all worth it in the end. Ended up partnering with one of my best friends, Josh, who also wanted to get into real estate investing. Since I could not qualify for a $750k+ loan on the home by myself, I needed to bring someone in anyway and it has turned out to be a great partnership.
How did you find this deal and how did you negotiate it?
Found it on the MLS. It was initially listed for $875k, but we got the seller's down to $831,725. The house previously appraised as-is four months prior to closing at $915k.
How did you finance this deal?
Low down conventional. In Hawaii the conventional loan limit before getting a jumbo loan (as of 2020) is $765,600. Since 3-5% of our purchase price exceeds this amount, we ended up putting down the difference of our purchase price less max conventional loan limit, which came out to ~$66k or ~8% as a down payment. After negotiations we also had to pay additional closing costs of ~$6k.
How did you add value to the deal?
There's lots of potential for big rehabs throughout each of the units, but they were mostly rent-ready from the start. We hired some professional cleaners, painted one of the units, replaced some appliances, updated some plumbing, and fully transformed the front yard that used to just be a pile of dirt. All units are fully rented and we plan on doing more projects after we build up our reserves and go through some tenant cycles.
Lessons learned? Challenges?
In Hawaii there are many properties (even on the MLS) that make great house hacks. However, most of the ones that made sense from a return perspective exceeded the $765,600 conventional loan limit if you were to put down 3-5% using conventional/FHA so we ended up having to put more $$$ down than expected. Luckily we did have the capital and are excited about the returns thus far. Can't wait for the next!!
Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?
Yes, I worked with Patrick Franta, who I initially found through BP and have connected with him at local meet-ups. He is a great investor-friendly broker here on Maui and I would definitely recommend him if you're looking to purchase a property of any kind (STRs, vacation home, rental, primary residence, etc.). Mahalo for all your help, Patrick!
