Quote from @Rodney Sums:
Quote from @Peter Christensen:
Investment Info:
Small multi-family (2-4 units) buy & hold investment.
Purchase price: $800,000
Cash invested: $120,000
I used the equity I had built up from my townhouse I bought in 2013 to fund this deal by selling it and making a contingent offer. The deal went through and now we live in one side of this duplex while we rent out the other unit. The cash flow if very modest, but it will improve when we move out and rent out the other side (hopefully in 2022), however, cash flow is not my top priority with this property as it should appreciate very well in the long term with its proximity to Lake Minnetonka.
What made you interested in investing in this type of deal?
I always wanted to try a house hack. I also wanted to sell my townhouse and move out of Minneapolis.
How did you find this deal and how did you negotiate it?
Zillow/on the MLS. It was listed for $825k. We offered $775k and eventually met in the middle at $800k.
How did you finance this deal?
Technically these are two twinhomes, not a duplex, so I put 25% down on the side that we rent out and only 5% down on the side we live in since we got a primary residence mortgage on that side. I had no cash at the time of the purchase, but we made an offer contingent on the sale of our townhouse, which sold and had more than enough equity for the down payments.
How did you add value to the deal?
At this point, we haven't yet. My attempt to raise rent when we had a vacancy failed since the unit was available February 1st. I ended up cutting rent a small amount to avoid vacancy. The property was in great shape when we bought it.
What was the outcome?
We have a beautiful duplex that should appreciate in value and rent that we plan on holding for decades.
Lessons learned? Challenges?
The unit we now live in had a tenant in it on a month to month lease when we bought. We needed to move into that unit so the seller informed the tenant he had to move out, which upset him, and he caused some damage to the unit on his way out. When we informed him that he wouldn't be getting all of his security deposit back, he threatened us with a lawsuit, which spooked us into being pretty lenient with him in the end. We should have handled that situation better and stuck to our guns.
Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?
Yes. DM me if you'd like to get in touch with our team of agents or lender.
Man I hate to hear that the tenant intimidated you that way. What kind of case did they think they had???
"Your honor, the new owner raised the rent in accordance of the law. I didn't like it and kicked a hole in the wall. They want me to pay for the damage with my deposit. That's not fair I want justice!"
I see and have experienced people use the words "attorney", "sue" and "lawsuit" so often when it becomes evident they are losing control of a situation. Glad you learned not to be bullied that way again.
So I didn't raise rent on him or anything like that. The situation was that the previous owner had both units under lease, but one had several months left while the other was month to month. My offer would require him to ask the tenant to move out and the month to month lease was over so that way my family could move in. We wanted this deal enough to convince my wife who was 6-7 months pregnant at the time to live in my sister's basement after we closed on the sale of our townhouse and waited for this guy to move out. He had every right to move out earlier if he wanted and didn't want to deal with me as his landlord. I think he was just salty about having to move out and when I tried to introduce myself the day of the final walkthrough before closing, he said, "so you're the one causing me all the inconvenience" and I was like, "hey, I'm going to be your landlord for another 30 days, just wanted to say hi" and he was like "you're not my landlord".
So that was the first impression he made, but nevertheless, he acted cordially in emails as moving out day came closer for him. As I tried to arrange a walkthrough of the unit to see if he caused any damage and if we'd be giving him the full deposit back, he kept on saying the times and days didn't work for him, and insisted "the place is perfect, you won't find anything wrong." I'm like, okay, fine, if you say so, but I was also thinking he's giving up any opportunity for him to dispute what I find wrong. I, of course, had the checklist from when he moved in (provided by the previous owner) and he hardly noted anything being wrong with the place when he moved in, just a few things being dirty. When my wife and I showed up to move in, we found the place mostly still fine, but a laundry list of little things were nicked up and left dirty. Marks on walls and trim from his pets, didn't clean the kitchen, marks on floors, etc. These things were things that were just covered up or not as easy to see when he had all his stuff in there. I think we overreacted a bit to that stuff. However, he had a gaping hole in one of the walls that he tried to fix himself with spackle. I mean this was embarrassingly bad. I think he also used clear packaging tape. That and there was cat urine damage to the carpet and trim in the same room.
Because of all this, we wrote him an email saying we'd be getting quotes from contractors to fix these items and we'd let him know how much of his deposit would come back (if any of it) after we got the quotes. He got very upset by this and claimed the hole in the wall should only cost "about $200 at most" and if he didn't get his deposit back within a week I'd hear from his lawyer. I think where we really went wrong was making too big a deal of the smaller items that could arguably be considered "normal wear and tear" and we forced his overreaction. In the end, the quote for patching the drywall and painting came back around $600, and we returned his deposit less that amount, and we never heard from him again or his "attorney". We paid out of our own pockets to replace the carpet and damaged trim in that room (ended being around $1500 I wanna say) and scrubbed walls/floors/trim or painted to cover up all of his marks he left. I stuck to my guns on the hole in the wall, thinking we had all the evidence we needed for that if we really wanted to sue, but he really should have had to pay for the carpet too. I just got too intimidated at the prospect of actually having to go to court over all this and went easy on him. He seemed to think that because I wasn't his landlord when he signed his lease, that the 30 days of being my tenant didn't count, and he was no longer beholden to his move-in condition assessment form. He made comments like "you bought this house as-is" as if he had any knowledge of my deal with seller. Unbelievable stuff, really. I think when he saw me, he resented that some "kid" was buying this house and uprooting him from his life and he resented me for it. I'm not a kid, I'm 35 (was 34 at the time), but I look a lot younger than that to most people, and I think he was in his 60s. I could be reading into some of that, but he sure thought he could tell me how things were gonna be.
So my lessons learned are:
1. Don't let a tenant weasel his way out of the final walkthrough when they're moving out and to also try and make a better first impression if I take over an existing lease in the future.
2. Some people's bark is far worse than their bite, and if the law is on my side to be bolder about that.
3. Finally, I learned to not fret over normal wear and tear items to exhaust any good will/credibility that you'll need for big ticket items they're actually responsible for (the hole in the wall, the carpet).
But most of all, the lesson is, all of this was worth it. The property is making a great home for our family and will be an even better rental for years if not decades to come. Thanks for reading/responding to my post.
