The Acquisition-Purchase, Closing and Plan
North Phoenix Multi Family is always popular. Finding value add in the current market (that is real value add and not exaggerated numbers) is difficult. Linda received an OFF MARKET value add triplex which consisted of a 3 bedroom Single Family House with a duplex behind. The people that owned the property were moving and needed to downsize for personal reasons. After reviewing the acquisitions numbers and what the property could sell for if rehabbed completely; Linda decided that there was an opportunity.
The triplex was in poor shape but basically had good “bones”. The decision was made with the Investor to purchase, rehab and SELL for a profit. As this was a first project for the investor; everyone new that the “lift” was smaller than a larger project but not only was the Investor okay with a smaller return it was felt that it would turn quickly as it was in an area that rents well and is in demand to multi-family buyers.
The Rehab
One of the most important items in a value add property is to make sure that the mechanicals (hot water heater, cooling and heating, appliances and the roof is in good condition. Then the vision for what needs to be done to make the property the most sell-able. The property needed flooring, doors, appliances, concrete work and painting to name a few. Once quotes were done (before the property closed) everything went into high gear. It is important to note that on this property that the previous owners could be considered “hoarders” so the trash out phase was extensive and took a few more days than was expected.
Several times during the rehab process; Linda went by the property to not only evaluate the process but the quality of the rehab. Typically we want to bring the property to market as early as possible but not too early as it is important to get the “wow” factor out of the gate.
Sept 2015
Acquisition Date
$125,000
Acquisition Price
$50,000
Project Budget
Jan 2016
Disposition Date
$190,000
Disposition Price
The Marketing
As the demand for 4 units or under is high, the Triplex had two pools of potential Buyers. One is the investor that likes small multi-family and the other is owner occupied . As this type of property is financed with Residential Financing-there is a wide scope of Buyers that look for these types of properties.
Linda is well known in the Phoenix Market for 4 plexes and as she is well respected by the Brokerage community; many Agents will call Linda to see what she has either available or coming to market. As the plan was to list at $190,000; when an agent called on another one of Linda’s listings she immediately (when the listing that was called on was not right) spoke to Agent about this property that was coming to the market.
She carefully spoke to the Agent about the rehab that was being done and while being very realistic on the timeline to complete; made sure that the Agent and her client were on board. It is important to set expectations wit all involved. The Buyer drove by the property and fell in love with the property even as the rehab was still under progress. in fact it was almost 60 days away from completion.
Once we were at this stage; Linda called the Investor and asked if he would take a contract with a sale price of $190,000 early in the rehab and the Seller said absolutely.
The Sale and Completion
One of the aspects of a Sale with any rehab or a reposition project is to make sure that the property is priced to obtain the most return but not be priced out of the market. As with this Property, there was a solid Buyer (remember that the Buyer was vetted along with his loan thoroughly) that was excited and waiting for the Property.
The Buyer inspections were delayed until the rehab was complete but TENANTS were knocking on the door to rent the duplex in the rear of the Property. This was accomplished. As this was done the income offset some of the carrying costs during the rehab. Additionally, the Buyer had income from day one of his purchase. The property inspected cleanly.
The next step was the appraisal for the loan. Linda personally met the Appraiser at the property. She brought comps, a list of the Capital Improvements, copies of the leases and rent role. Also, she did not forget the STARBUCKS COFFEE. Many Brokers do not go the extra mile and often the Appraiser does not meet the contract price. Guess what? The property appraised for the Contract Price.
The investor has moved onto another rehab project immediately that Linda found. This was a win-win rehab project.
It is important that any investment have at least two exit plans and this is no exception. If the property did not sell the Investor had chosen to put a “traditional” loan on the Property and simply have a cash flowing investment to add to his Portfolio.
Project Photos
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Vista Income Estates Fourplex-Completed