BP Community!
I just closed on an 8 unit this month putting only 6% down on the deal. I expect my cash on cash return to be over 90%. Ill detail the information below. Please reach out to me with questions as I love to connect and try to help those who are just getting started or connect with those that are looking to team up and go after bigger deals.
Some may have read my post in the past about hitting 20 units at 22 years old. You could say it took a long time to get an additional 11 units given I closed 20 units in just 10 months of getting started with my investing. But since that time I left my corporate job, moved states, my daughter was born and is now 6 months old, and I began investing in a new city. Needless to say a lot has happened since I closed my 16 unit a year and a half ago. If you want to check out that article here it is.
https://www.biggerpockets.com/forums/223/topics/28...
It has been a rough past 18 months trying to find another sweetheart deal like my 16 unit. I closed that property with less then 1% down of my own cash. I knew not to expect that in the future but was hoping to replicate some of that deal structure. With a competitive landscape for all types of real estate I had a very difficult time finding opportunities where the price and numbers looked good, and the seller was motivated enough to carry a note. So I sat on the sidelines being very impatient.
While I looked for deals of 8 units or larger in Wisconsin, Michigan and Indiana I let my cash build up. With my automated alerts set up, a 3 unit came on the market in the town where I had already been investing. $69k for a 3 unit with gross rents of $2k a month and total expenses of $800 a month which included management and capX. Knowing the seller consisted of family members who inherited the property this year and had never actually seen it I offered $56k the same day it hit the market, cash, and close in 2 weeks. They accepted the offer and we closed the deal quickly so the family could move on from he property. Only $1k of work was needed right away to deal with deferred maintenance issues on the property.
Utilizing my relationship with a great local lender I started the process of getting a secured line of credit set up against the 3 unit so I could pull most of my money back out. I ended up closing the line at 5.25%, interest only payments for 80% of what I paid for the deal. Basically its a big credit card that I can now use for any business related purpose, in my case Ill use it to do more deals.
So here is where the 8 unit comes into play. Another one of my automatic alerts hit my inbox telling me the price on an 8 unit in South Bend IN dropped its price by $50k. I knew the numbers didn’t work at the old asking price, but now the property was priced at an 8.5% cap rate which I am happy with in my area.
I reached out to the listing broker and got a showing setup right away. After the showing we stood out on the street and talked through the deal. I was honest about my inability to do the deal with a normal 20% down(probably could have but didn’t want to) but if the seller could carry 10% I had enough cash ready and could close within 60 days. He asked me to put the offer in writing and get it over to him that evening so he could pass the info to the seller. The following day I got a small counter back and I accepted. We agreed on $345k with the seller carrying 10% on a 20 year note at 5% for 18 months.
Financing the deal went pretty smoothly, although a bit slower at first then I would have liked. I pushed the deal forward with multiple banks understanding that there was a good chance a banker would get pushback from underwriting later in the process. It happened to me on the 16 unit and it happened to me on this deal. But having multiple banks working the deal I had one pull through for me. We closed the bank financing at 80% LTV at 4.5% on a 20 year amortization and 5 year balloon. I thought it was interesting that I never even met with my banker until we got to the closing table. We had only worked together via phone and email for this deal.
After all prorations at closing, I was only responsible to bring 6% to the table. Not too bad in my opinion considering I pulled that money from my line of credit and didn’t have to tap into any of my current savings. I also still have 60% of my line available, along with current savings to do another deal.
With respect to paying off the seller note, I have been working with a number of people discussing private lending. My goal is to bump up rents and give the property a face lift over the next 18 months. I am confident that I will be able to refinance the remaining seller note principle with private money to allow me to hold off on putting more money in the deal. At my 5 year commercial balloon I will pay off the private money and have only one loan on the property at 70% LTV.
Here is how I expect the numbers to look for me.
| Greenock Financials | 2018 | 2021 |
| Revenue | $60,030 | $64,640 |
| Gross Potential Rent | $62,400 | $67,200 |
| Avg. Rent Per Unit | $650 | $700 |
| Other Income | $750 | $800 |
| Less Vacancy | $(3,120) | $(3,360) |
| Operating Expenses | $18,790 | $19,809 |
| Repairs | $4,000 | $4,200 |
| Capital Expenses | $2,000 | $2,100 |
| Landscaping | $1,500 | $1,575 |
| Utilities Vacant Units | $288 | $302 |
| Property Taxes | $6,000 | $6,300 |
| Insurance | $1,500 | $1,575 |
| Management | $3,002 | $3,232 |
| Other | $500 | $525 |
| Net Operating Income | $41,241 | $44,831 |
| Financing Expenses | $22,224 | $22,224 |
| Cashflow | $19,017 | $22,607 |
| Down Payment | $21,000 | $21,000 |
| Cash on Cash Return | 90.55% | 107.65% |
Keep in mind, this return doesn't even include the principle pay down on the loans.
My biggest advice for people would be as follows.
- Know why your in the real estate game, and why a specific niche. I have a goal of being able to spend time with my daughter and family. We want to be traveling and sailing throughout the year, not just when a job allows me to use my 10 days of vacation. Multi family has allowed this to become a reality. I started with no money 30 months ago with a 4 unit deal. I borrowed the $25k down payment from my parents at 8% and got the deal done. Since then I have focused on finding good deals and getting great financing to get stellar cash on cash returns.
- I have clearly written out levels of of my dream life I want to achieve. This property has gotten me to level 1. I have now replaced my old corporate job income and expect to make over $70k cashflow off of my 31 unit portfolio while also having the time I want to be able to enjoy sailing, camping, hiking, and hunting. Next goal is $250k in income through my real estate and stepping away from the day to day management of the properties. Level 3 is $20m in real estate so I can retire with a 5% return for $1m a year. Long way to go, but making solid progress. The multi family niche makes this goal possible.
- Keep pushing. In both my seller financed deals the primary bank I was betting on backed out. But I kept pushing to get more banks lined up and in each case needed them to close the deal. Now those backups are my primary banks and we have built great relationships. I also looked at hundreds of deals online and visited over a dozen properties before I landed on this 8 unit. It takes time, but patience and percipience will get you to the finish line.
I look forward to connecting more with the BP community. You all have been paramount to my success thus far. By no means am I a millionaire or did I get rich quick and quit my day job right away. But here I am, full time after 30 months and loving every minute of it!
Joel
