Why I liked it
This was a great “starter kit” portfolio with diversification through different property types in different areas. Almost fully leased with plenty of rent upside.
Deal structure
Four-person partnership. Rather than getting a commercial loan for the portfolio we split them up into 5 separate, conventional loans to lower our interest rate (increasing cash flow) and down payment (increasing our cash on cash return).
Because we took out individual loans, we were able to assign prices to each property as long as the total met the overall contract total. We chose to assign the single family homes at much lower prices since we plan to hold those for a shorter time period than the multi-families.
Deal outcome
We saw little to no cash flow in the first year due to improvements we made on each unit, most of which cost more than projected.
The under-estimates were largely due to inexperience, but also some team decisions to do full renovations on certain properties as opposed to standard repairs on move-out.
By the end of the first year our total monthly rent across the 10 units increased by over $1,000. Property values in the area skyrocketed that year, and that combined with our improvements added roughly $140,000 in equity across the 10 units.
Single Family Home 1
Projected Numbers
Purchase: $68,000
Rehab: $4,000
Rent: $715
Actual numbers
Current Value: $95,000
Rehab: $13,000
Rent: $1,000
Single Family Home 2
Projected Numbers
Purchase: $79,000
Rehab: $3,000
Rent: $800
Actual numbers
Current Value: $110,000
Rehab: $8,000
Rent: $950
Single Family Home 3
Projected Numbers
Purchase: $84,000
Rehab: $0
Rent: $850
Actual numbers
Current Value: $105,000
Rehab: $0
Rent: $900
Triplex
Projected Numbers
Purchase: $189,000
Rehab: $7,500
Total Rent: $1,930
Actual numbers
Current Value: $225,000
Rehab: $16,000
Total Rent: $2,125
Quadplex
Projected Numbers
Purchase: $236,000
Rehab: $5,000
Rent: $2,335
Actual numbers
Current Value: $300,000
Rehab: $6,000
Rent: $2,745