This is probably the last place you thought you could build a multifamily portfolio: out here in the country in a little town with less than 8k people. But opportunities are everywhere! That’s what I’m going to show you in this week’s vlog.
The wealth that you create in real estate starts small. If you own a lot of rental properties, you didn’t buy them all at once. You get there by doing your first flip, buying doors one at a time, and building it up over time.
In this week’s vlog I’m interviewing two first-time investors about their first deal. The investors are actually Keri’s brother AJ Westlund and Lily, his wife. AJ is a one-time pro snowboarder turned worm-slinger. He sells worm poop to farmers all over Oregon. Makes a great quality product by the way at Ground-Up Soil and Dust.
This is gonna be his first real estate deal with 6 rental doors.
AJ and Lily purchased 4 doors for $516k, currently fully rented. The rent roll is $4200. Cash flow is about $1400. That’s after paying principal, interest, taxes, and insurance. So in a year they’re pulling out about $16,000 (depending on how coronavirus affects the rent roll). That’s on a down payment of about $132,000. So AJ’s already above 10% cash-on-cash return. Plus every month they’re paying mortgage down, so they’ve got $6k in equity coming in a year. Cash-on-cash plus equity paydown every year is like $20k. So this is already looking like a great deal. In theory you could have your money out of this deal in about 5 years, and then after that it’s pure profit.
But it gets even better: Included in the purchase price was a vacant lot. That was the cherry on top. They plan to build a duplex on the lot. They’re expecting about $1600 each in rent out of those, so that’s another $3200 monthly income coming in. The build cost is ~$300k. They’re hoping for an appraisal, including the land it sits on, all in on $400,000.
At most that’s going to be another $20k on top of the $132k already paid, because they’re going to pay $300k to build, but will pull it all out with the refinance.
Worst case, they’re in for $152k but adding another $300, about another $150 a door after the mortgage, so cash flow potentially increases to $1700 or $1800 a month — $20k or $21k a year. That brings their cash-on-cash above 13%!
Here’s the obstacle: This is all contingent on a zone change. The lot AJ and Lily want to build on is now zoned as low-density, and they need it changed to medium density to build a multifamily duplex. They’ve already had to sit down with the city for $300 to talk about feasibility. The official application process is long, drawn-out and expensive at about $3,000 — plus there’s a chance that the town will just say no. But the deal looks good so far because they’re only going from single-family to duplex.
AJ wants to take his real estate investment from 6 doors to 100 doors in 5 years! It all starts here, with this one deal.
There’s opportunity all around you, you’ve just got to grab it!
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