My Formula to Wealth--Multi-Unit Properties

by Dave McKee, Eugene, OR
http://www.dave-mckee.com

I have been investing for about 30 years, so I have lots of stories about making money on rehabs. This was an interesting one. It was a four-plex in a good location, but had been owned by a law firm. They had bought it for a tax shelter, but no one wanted to deal with repairs, managing it, or showing vacancies.

The junior partner always got stuck dealing with those things. They realized that it was causing them more trouble than it was worth, so they listed it for $35,000 with a Realtor. It had been neglected, but was a well built 1922 vintage, bungalow-style house.

I offered to buy a six-month option for $1,500 at a sales price of 26,000 as is and lease it for the current rent of $350/month, with the right to rent it out month-to-month and do any repairs I wanted to at my expense.

They liked the idea of not having to collect rent or do any repairs and have full occupancy guaranteed! They took it, but they didn't think I could do all that work in six months, so they made it 24 months! Fat city!

I replaced the roof, painted the exterior, and fertilized and trimmed the lawn and shrubs. One tenant moved out, so I rehabbed that apartment and rented it for $125/month. Then, rehabbed the others with the extra income over the next six months.

By then the rents were almost $600/month, so I had it appraised and got a new loan for 75% ($32,000) of the appraised value of $45,000. Enough to exercise the option, recoup the cost of the roof and paint job, and the new mortgage payment was $425, including taxes.

I have repeated this method several times since. I still have that property. It brings in about $2,200/month now with a market value of about $300,000.