Investment Info:
Small multi-family (2-4 units) buy & hold investment in Indianapolis.
Purchase price: $34,000
Cash invested: $33,923
Highly distressed duplex over on Indianapolis' east side. First mistake I made wholesaler pitched this as a three bed / one bath on each side. It ended up being a two bed / one bath on each side with a very small storage area (no where near big enough to be classified as a bedroom). That was the first mistake I made. And as of today this i the only probably I own
What made you interested in investing in this type of deal?
When I began looking for properties to aquire at the beginning of this year - I was finding that many of the properties no longer met my investing criteria (12% CAP rate + "all-in" at <75% of ARV). But I began looking at duplexes and the numbers seemed to work very well.
How did you find this deal and how did you negotiate it?
Wholesale deal - I had already bought several properties from they so they made me a deal.
How did you finance this deal?
I bought the property for cash but then I refinanced it with a hard money lender. This is probably the second mistake I made on this deal. That process of purchasing with cash and then refi with hard money is expensive. The hard money ended up charging higher number of points because the loan was less than $100K. More expense on the pile.
How did you add value to the deal?
This was a very heavy rehab. We added a new roof, new windows, new doors, gut of the kitchens, gut of the bathrooms. We converted the small "storage" space into an added small second bathroom with stand-up showers on each side. Repairs and paint on the exterior as well. We used glue down vinyl plank flooring that did not photograph well.
What was the outcome?
Project went way over budget. Rehab went much longer than expected. Took MUCH too long to get rented. Because of the quality of the rehab - the appraisal ended up coming back WAY lower than even what the hard money appraised it for. I attribute this directly to the quality of the rehab done. Specifically the "textured" walls and then glue down vinyl plank which has come up in a number of areas already after less than a year.
Lessons learned? Challenges?
#1) Make damn sure it is an actual honest to god three bed room. No small storage rooms as the third bedroom.
#2) Do not buy for cash and turn around refi with hard money. That is expensive and a LONG process before you get started on the rehab.
#3) No more glue down vinyl plank. We use click together in all of our properties now.
#4) If you are going to rehab it - do it good and do it right. Trying to cheap it out will only impact the appraisal down the road.
Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?
I have no one to recommend from this deal..... I wish I could say I am proud of the work that was done here. I'm just glad to cash flows and doesn't cost me money in the end.
