All Forum Posts by: Pete Harper

Investment Info:

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

Purchase price: $85,000
Cash invested: $100,000

Crazy cat lady duplex. This is going to be our most ambitious real estate project yet. This is a 1960's all brick duplex. It was originally build as a mother in law property with two identical 1200sqrft 2 Bedroom/1 Bath units. It was most recently occupied by the original owner who had cats. The place reeks of cat urine. She has moved to an assisted living facility and we purchased it from the family. With 1200sqrft to work with there is more potential in the property than just a 2BR/1BA. It has a half-assed carport conversion adding an unofficial 3rd bedroom. Our plan is to totally gut the house removing all the dated wood paneling, kitchen cabinets and bathrooms. We will rebuild as a 4 bedroom/ 2Bath with laundry. This will make the property family friendly in keeping with the residential neighborhood.

Since this is a bigger project than we have done before we plan on hiring a contractor to do the major work; demo, framing, electrical, plumbing, and sheet rock. My wife and I will do the finish work with new kitchen cabinets, new bath, flooring and paint. We have budgeted $60,000 and 6 months for the project.

All-in cost $145,000
ARV estimate $225,000
Rents $2200

After reno is complete and we have the property fully rented we plan on doing a cash-out refinance and go find another deal. BTW the cash for this property comes from a cash-out refinance of a 4-plex we purchased with 1031 exchange funds in September of 2019. The same capital has been cycled through two properties in a year. Gota love the BRRRR Strategy!

Update: We started off with a really bad contractor, the guy was literally a crook. From now on I run background checks on everyone I hire. We ended up firing him after he abandoned the job unfinished. Renovation took much longer than expected and cost more. I ended up doing a lot of the work myself to recover. In the end the deal turned out OK. We learned some valuable lessons and the place looks terrific. We have it all rented for more than I forecast so everything worked out in the end.

All-in cost $185,000
ARV estimate $250,000
Rents $2550

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

We saw the value add potential in renovation and adding additional bedrooms and baths.

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

Found the deal on MLS.

How did you finance this deal?

Cash out refinance from another property in Bryan, TX

How did you add value to the deal?

Completely redid the entire interior from the studs up. We took old carport area to add second bath/laundry, bedroom, and living room. Upgraded each side from 2BR/1BA to 4BR/2BA.

What was the outcome?

Long term hold.

Lessons learned? Challenges?

Painful lessons learned dealing with contractors. First guy was a crook, literally a convicted felon. I now do background checks.

Investment Info:

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

Purchase price: $85,000
Cash invested: $100,000

Crazy cat lady duplex. This is going to be our most ambitious real estate project yet. This is a 1960's all brick duplex. It was originally build as a mother in law property with two identical 1200sqrft 2 Bedroom/1 Bath units. It was most recently occupied by the original owner who had cats. The place reeks of cat urine. She has moved to an assisted living facility and we purchased it from the family. With 1200sqrft to work with there is more potential in the property than just a 2BR/1BA. It has a half-assed carport conversion adding an unofficial 3rd bedroom. Our plan is to totally gut the house removing all the dated wood paneling, kitchen cabinets and bathrooms. We will rebuild as a 4 bedroom/ 2Bath with laundry. This will make the property family friendly in keeping with the residential neighborhood.

Since this is a bigger project than we have done before we plan on hiring a contractor to do the major work; demo, framing, electrical, plumbing, and sheet rock. My wife and I will do the finish work with new kitchen cabinets, new bath, flooring and paint. We have budgeted $60,000 and 6 months for the project.

All-in cost $145,000
ARV estimate $225,000
Rents $2200

After reno is complete and we have the property fully rented we plan on doing a cash-out refinance and go find another deal. BTW the cash for this property comes from a cash-out refinance of a 4-plex we purchased with 1031 exchange funds in September of 2019. The same capital has been cycled through two properties in a year. Gota love the BRRRR Strategy!

Update: We started off with a really bad contractor, the guy was literally a crook. From now on I run background checks on everyone I hire. We ended up firing him after he abandoned the job unfinished. Renovation took much longer than expected and cost more. I ended up doing a lot of the work myself to recover. In the end the deal turned out OK. We learned some valuable lessons and the place looks terrific. We have it all rented for more than I forecast so everything worked out in the end.

All-in cost $185,000
ARV estimate $250,000
Rents $2550

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

We saw the value add potential in renovation and adding additional bedrooms and baths.

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

Found the deal on MLS.

How did you finance this deal?

Cash out refinance from another property in Bryan, TX

How did you add value to the deal?

Completely redid the entire interior from the studs up. We took old carport area to add second bath/laundry, bedroom, and living room. Upgraded each side from 2BR/1BA to 4BR/2BA.

What was the outcome?

Long term hold.

Lessons learned? Challenges?

Painful lessons learned dealing with contractors. First guy was a crook, literally a convicted felon. I now do background checks.

Thanks for reply. I have a follow up question on financing. Why the high down payment? Typically commercial requires 20-25% down. I would think NNN would be considered lower risk than multifamily.

I'm a long term buy and hold investor looking to diversify my portfolio. We currently own 38 doors of small multi-family apartments in Central Texas. As we grow our business I'm looking for options to diversify. We started off very hands on doing our own renovation work, we renovated 12 units in the last year anywhere from full gut reno to light reno. We did the self manage thing for a year but I've now turned everything over to a PM. My wife and chief painter, keeps reminding me we are supposed to be retired. With an eye to more hands off investing in the future I wanted to investigate NNN.

I see a number of properties in the $1M-4M price range. Starbucks, McDonalds, General Dollar, Autozone and etc  Most are advertised for a 3.5-4.5% cap rate.  Any advise on large National Brands vs smaller local mom and pop operations. Retail vs Fast Food?  Do you get a percentage of gross?

I hear financing is a little different for NNN compared to small multi-family commercial. Can I use cashflow to qualify for a loan? Typical down payment and terms? Seller financing an option? I have a good relationship with a small local bank willing to do portfolio loans. The only issue is they are only giving me 15-20yr term and that isn't going to cash flow at a 4% cap rate.

How hands off are NNN really?

Any good resources to learn more about NNN? Books, PodCasts, etc.

First property was in CA, the second property is in TX. How would CA know if I sell in TX? Assuming I hold in TX for 10+ years. 

How far can you string 1031 exchanges into the future?  If I do another 1031 exchange into a 2nd, 3rd, or 4th time do you break the chain?

 

I recently closed a deal using 1031 exchange. I was wondering when it comes time to sale how is the IRS notified?  It's not like there is a tax lien on the property is there?

If the 1031 originated in a state with income taxes and you have moved to a state without income taxes, do you still owe taxes in old state?

Thanks

Investment Info:

Large multi-family (5+ units) buy & hold investment.

Purchase price: $1,100,000
Cash invested: $700,000

10 unit stand alone apartment complex. All units are 2 bedroom 1 Bath with washer/dryer hookups, and dishwasher.

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

We were looking for a property for a long term hold property for 1031 exchange. We are long term buy and hold investors looking for cash flow.

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

We looked at a number of MLS and off market deals. This particular property was found on MLS however we looked at and made multiple offers prior to securing this deal. The current market has been super competitive with everything going for over asking price. Nothing was making sense from a cash flow perspective. We liked this property because of recent 2018 remodel and stable growing rent history. Conroe also checked the boxes as a fast growing suburb of Houston.

How did you finance this deal?

From prior deals I had a relationship with a small local bank willing to make portfolio loans. We shopped around other brokers but no one was competitive. Since we had a good loan history with this lender the process was quite painless. No paper chase for tax returns etc. High downpayment helped too.

How did you add value to the deal?

The property is in excellent shape with a 2018 renovation. All the units have been updated with granite counter tops, tile and LVP flooring. The biggest opportunity is going to be in improved property management. Current PM is out of town and it shows. Multiple lease violations; everyone has pets but only one tenant has a pet lease agreement, pit bulls and other large breeds, major fire hazard with BBQ grills under the front porch roof. Multiple complains from tenants on maintenance issues

Lessons learned? Challenges?

I need to do a better job screening agents. We had one of the worst agents I've ever worked with. Very weak in negotiations accepting buyers agents BS as fact, little to no follow through. We got it done but I had to step in and go around my agent on numerous occasions. Her only duties were submitting contracts, that needed numerous corrections and one showing. Didn't even bother to show up for closing.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Would not recommend the agent we used.

BP has discontinued the IOS version of the mobile APP.  I had this early version but lost it when I recently upgraded my iphone.  I've asked BP why several times and never received an answer.  While at an ATT store and noticed the APP is currently available on Android.