As a first-time investor, would you rather start “small” with a house hack or dive into a multi-family?
The following case study is that of a first-time investor who went all in on a quadplex in Lakewood by pulling their savings from the stock market for the down payment.
Back Story:
In November of 2022 this client was browsing BiggerPockets and researching what type of investing strategy would be best for them. At first, they were keen on a fix & flip, “the numbers were pencil positive”, but concerned about the reliability of their contractor network. By February they were looking at short-term rentals and in June they found the golden ticket. A fourplex where two units rented as long-term rentals and two as midterm rentals.
The Offer:
The client was sent the listing from their agent on June 2nd and immediately knew they wanted to see it. Before the listing agent would set up a showing the buyer needed to show proof of funds. This is why it’s super important to get preapproved before looking at properties! Luckily the client and agent could pull it together quickly and set up a showing for noon the next day. By 5:30 on June 3rd an offer was being drafted.
The Numbers:
The property was listed at $1.15M and the initial offer was made for $975,000. There were some obvious repairs that would need to happen to get the units up to market standards.
After a round of competing offers were reviewed by the listing agent, the buyer upped their offer to $1.02M and sealed the deal with a call from their lender to the listing agent for “surety of funds for closing”. (The buyer’s agent took note that surety of funds was very important to the sellers!)
Here’s a breakdown of the all-in expenses and current-day rental income and cashflow.
| IG Calculator | |
| Purchase Price | $1,020,000 |
| Down Payment (including closing costs) | $430,000 |
| Rehab | $40,000 |
| Estimated ARV | $1,060,000 |
| Rental Income | $8,200 |
| Rent Savings | $- |
| PITI | $6,200 |
| Reserves | $500 |
| Property Management? | $- |
| Cash Flow | $1,500 |
| Principal Pay Down | $15,000 |
| Appreciation | $53,000 |
| Cash on Cash Return | 3.83% |
| NWROI | 18.30% |
Inspection & Concession
Without dialing into all the details from roof issues to boiler replacements and cosmetic updates, there was room to go back to the seller with some major requests in the inspection objections.
The seller didn’t want to complete any work while under contract, but the agents agreed to seller concessions totaling $30,000 which covered closing costs and the rest went to a price reduction.
What we loved about this deal
- The big win is the equity gain
- After renovating the units (est. $30,000) the ARV should be $1.2M ($180,000 in appreciation)
- Buyer diversified their portfolio, not relying entirely on the stock market
- The buyer is already looking to buy the 4plex next door 😊