Investment Info:
Small multi-family (2-4 units) buy & hold investment in Croydon.
Purchase price: $125,000
Cash invested: $100,000
When I bought it it was used as a single family home. I made 4 apartments and a garage rental out of it. Its all done now and I am showing the last apartment next week. I'm finding its harder to find lenders to do a cash out refi after the property is done than people say. That's the stage I am at now, even with a ton of cash flow and a credit score over 700 its really tough!
What made you interested in investing in this type of deal?
I am always looking for a property to convert. It takes so long to create more value. You can pay down the mortgage faster. You can buy properties for below their current value, or you can buy a cheap cat urine soaked, leaky roof, dirty, dated old house and fix it up!! One time I bought a house that the owners used an entire room as a litter box. They just poured cat litter all over the floor!! If you can find a property that can be split into multiple apartments then do that. Spend $ to make $.
How did you find this deal and how did you negotiate it?
The property was for sale for a year and I knew the guy. He lived far away and he mentioned that he needed to go to the house and check out a roof leak. I happened to be nearby when he was there and I hit him with a low price when he was trying to figure out what to do about the roof leak. I told him that I would take care of the building and he could be rid of it. He agreed on $125,000
How did you finance this deal?
I didn't have any cash at all because I had 5 houses in the various stages of rehab. He knew I was flipping, and he trusted me because I had done business with him before and always kept my word. I offered him $10,000 each time I sold a house over the next year, and I did exactly that. He held a $75,000 mortgage at 5.5% I ended up borrowing $50,000 from an uncle at 10% to do most of the renovations.
How did you add value to the deal?
I first created a one bedroom apartment and rented that for $800 a month. After that I had a couple guys make a 2 bedroom apartment and I rented that to the guys that did the job. I got $1250 for that one. The third apartment was finished a couple months later and I got $1350 for that one. For about a year I kept the entire first floor with tools and materials from my flips and renovations. All 3 apartments were on the second floor.
What was the outcome?
When the second tenant moved out I listed it and got 20 applicants. I rented it for $1350 and decided that I need to finish the first floor because there is such a need. I threw most of my junk out in 2-30 yard dumpsters and consolidated the last of it into the garage that i rent to myself for $500. The third tenant is moving downstairs and agreed to $1750 a month. I have several people that want to see the 3rd apartment when its ready.
Lessons learned? Challenges?
One hard thing in this whole business is getting the money to get started. I have 4 private lenders now that I can go to for hard money to acquire a property. I have one really hard rule. Don't screw with other peoples money!! People trust me with their money because I look them in the eye and tell them that I will pay them back come hell or high water, and because I really would, they believe me. I live by principles in life and business, and it shows. I pay my workers before I pay myself too.
Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?
I started out using hard money lenders to do the first few deals, but I really wouldn't recommend mine. There's plenty of those guys around. My experience is that they get a little greedy. When your getting me for 12% and a 4 point fee do you really need to charge closing fees for every stupid chargeable item? I think they even make some up. $165 for a payoff fee? Maria Storch from Remax Access is my agent. Shes awesome!! THE ONLY THING i CANT FIND IS A BANK TO CASH OUT REFI.... cant find one!!
