I’ve been really slacking when it comes to writing about our initial purchases, refinances, and breaking down all the numbers on that. I’ve only done them for three properties:
- Somerset was the first one I did along with a follow up a little over a year later.
- The Great Greydale was the second one I did which could also use an update.
- Wrecked on Rutherford was another, but it’s in need of a (not fun) update.
We now own nine properties, representing ten units (8 SFH’s and one duplex). Of those nine properties, six are currently rehab’d and tenanted. So I have at least three more of these reports to knock out (this being one).
The “Dougie Fresh Duplex” was the fourth property we purchased, and represented a couple firsts for us. It was our first non-single family home and first off-market deal. It’s nickname is derived from the previous owner who had rehab’d the lower unit and was living in it himself. He told me that if I ever needed a plumber, his guy was fantastic, gave me his number, and said, “Tell him ‘Dougie Fresh sent you”.
Yeah, he considers himself pretty fly (for a white guy… literally).
Anyway…
Off-market deals (aka “wholesale”) really aren’t my jam. My experience is, more often than not, they’re terrible “deals” to begin with and they’re mostly pushed by fly-by-night wholesalers trying to rip you off for a quick buck. I’ve now found it’s far better, and easier, to go track down the seller and negotiate directly yourself because few people will actually do the uncomfortable work of making cold calls.
But this deal wasn’t like that. In fact, it came across a real estate investing group I’m in on Facebook through an agent I personally know that works with another very reputable agent. In short, I trusted these guys.
I messaged him at 10:30pm, went to see it literally the next day, walked it with him, and decided we’d buy it standing outside on the street afterward. This was back in late July last year, and we ended up closing on it on August 9th, 2019.
By the numbers
So now that we have some background, let’s get into the numbers. The duplex was purchased for $64,000 with $7,000 of that being an assignment fee. So the MLS will show that it was sold for $57,000. Did I love the fact I was paying a $7k assignment fee? Absolutely not, but the deal was pretty solid so it made sense. Here’s how the numbers broke out:
- Initial purchase price: $57,000
- Assignment fee: $7,000
- DWSD deposit: $150
- Closing costs: $198 (this seems super low, but, and without checking, it seems the seller may have been responsible for most closing costs. Honestly, this is the first time I’m really noticing it.)
- Property taxes: $1,312.37
- Prorated rent and security deposits: $2,612.91
- Total cash invested: $63,047.46
OK, so we paid about $31,500/unit and there was very little work to do. At the closing table, the seller gave me his notice to vacate for the end of September. He’d be paying $850/mo until then (one more month). The upstairs tenant was only paying $650, which honestly was pretty strong for the area. Many people are still paying $400-$500 because these buildings have been owned for YEARS by the same people and were bought for next to nothing.
But the first thing we decided to do was delayed financing to pull out as much money as possible right away. I had high hopes that the home would appraise a fair bit more than we purchased it for given the condition, but I was a bit disappointed.
The appraisal came in at $68,000. Higher than we paid, but still… not what I was hoping for. The other surprise was the 70% LTV. I was expecting we’d be able to pull out 75% but didn’t know that 70% is standard on multi-family units.
Oh well.
So after closing costs we received $43,560.66 leaving us with still a little over $18,000 invested in the building.
Turn over time
We completed our cash out refi on September 26th. And that’s the benefit to delayed financing. Less than two months from the day we closed we’d already ripped out a good chunk of change.
Our lower-unit tenant (previous owner) had already moved out the day before and left a TON of his crap behind. Long story short, I threw up a “Free for Haul” on Facebook marketplace, people swarmed the house one morning (literally showing up with U-Hauls), and most of it was gone. I kept the security deposit for my troubles.
He (previous owner) was livid.
We spent $300 re-glazing the tub, and $100 cleaning the apartment for the turnover. Unfortunately, being in October it was a bit tougher finding a tenant. We didn’t end up filling the unit until late November and had to decrease our asking rent from $850/mo to $800.
But, we signed an 18-month lease and the tenant has been fantastic. We gave the choice of a 6 or 18-month lease to get the unit on the Spring/Summer cycle for the next time it turns over.
While I was cleaning out ol’ Dougie Fresh’s stuff, my upstairs tenant notified me she’d be moving out to take care of her parents. That was a bummer because I absolutely loved here. It also meant more turn work.
So while we were looking for a tenant downstairs, we were pulling carpet, refinishing hardwood, painting, and re-glazing the tub upstairs. We ended up spending $5,204.91 cleaning up the upper unit which included purchasing appliances from the previous tenant.
We finished this all up on December 15th and really debated whether or not to list the unit for rent due to the upcoming holidays. Ultimately, we figured we had little to lose, and I’m glad we did.
We found a tenant that was moving from North Carolina to work at Quicken Loans. We did a virtual walk through, they loved it, and everything ended up checking out. We signed a six month lease so if they didn’t end up liking the area, they could leave, but also because that would get the unit on a spring/summer rent cycle.
The lease was at $850/mo so we were now getting $1,650/mo for the building.
The upstairs tenant’s lease started January 1st, and at that point we had just shy of $21,000 invested in the deal.
Our upstairs tenant ended up leaving after their six-month lease and moving to the suburbs. I wasn’t surprised by this. The good news? They completely moved out two-weeks prior to the end of their lease and left the place spotless. We had zero issue re-renting the unit BEFORE the initial tenant’s lease was up. So we double-dipped a bit there. Again, the unit was rented at $850/mo with zero issue in terms of demand.
Cash flow numbers
As of this writing, we now just have $11,166.30 cash left in the building, so we’ve pulled about $10,000 out via cash flow since January this year. Not bad! Dougie Fresh Duplex is an absolute cash cow.
Here are our monthly numbers:
- Gross rents: $1,650/mo
- Principle and interest: $251.25/mo
- Insurance: $67.07/mo
- Property taxes: $157.02/mo
- Reserves: $495/mo at 30% gross rents
- Total monthly cash flow: $679.66/mo
In reality though, I don’t put money aside for reserves. I need to write about this in another post, but my logic can be boiled down to two things. First, I now have $5,500/mo in gross rents coming through the door each month. That will tick up to $7,000 in about two months. There are very few things that will come up that $7,000 can’t fix. Second, I usually have SOME cash on hand or accessible, so I just don’t worry about stashing part of the rent away each month for each property.
We’ve had a few small repairs pop up at the property, but nothing more than a couple hundred dollars. So it’s been pretty hands off thus far. I estimate that by this time next year we’ll have all of our cash out.
Photos (because who doesn’t love those?!)
Again, we did very little to this building, so I don’t have a lot of jaw-dropping before and afters to show. But to give you an idea of the units and everything I’ve detailed above, here are some photos:
The Dougie Fresh Duplex on a gorgeous day. 
Living room of lower unit with entry off to the right. 
Dining room with fireplace in the living room. 
We did nothing to the kitchen. 
First bedroom. Again, nothing was done in this unit except re-glazing the tub. 
Second bedroom. 
Third bedroom. 
Retro bathroom with original tile in fantastic shape. 
The basement was finished. 
Among MANY things, the previous owner abandoned his washer and dryer. We kept them 🙂 
Upstairs unit living room initial. 
Upstairs living room after. 
Upstairs dining area initial. 
Dining room (again) before. 
Upstairs dining room after. 
We debated updating the kitchen but ultimately decided to wait. 
It’s functional and rents wouldn’t justify the updates yet. 
Hallway to the bedrooms and bathroom. 
Again, the upstairs bathroom tile is in fantastic shape (and not so retro here). 
Upstairs bedroom before. 
First bedroom after. 
Second bedroom. The goal was to lighten and brighten up the entire space. 
And the final upstairs bedroom.
Both units have the exact same layout, with three beds, one bath in each. Our goal with the top unit was to make it light and bright, and I think we achieved that.
In the future we’ll update the windows and the kitchen. The lower unit has all new vinyl windows courtesy the previous owner, while upstairs are original yet. The kitchen is in great shape and functional, but dated. It’s had zero impact on demand though.
Also note, although the upper unit’s basement isn’t pictured (it’s not finished, either), the basement is partitioned so that each unit has their own side and their own washer and dryer. Tenants tend to LOVE that.
Final thoughts
The Dougie Fresh Duplex has been a great income producer for us. Here’s a graph of our cash invested and debt on the property since we’ve owned it:
Knowing what I know now, and had I known our upstairs tenant was also planning to vacate, I’d have waited to refinance after updating the top unit. Overall, this seems to be a theme in my “lessons learned” for properties we’ve purchased. I always seem to regret doing delayed financing.
There’s not much else I wish we’d done differently. Our mortgage is currently at a 5.25% interest rate, so we could definitely improve that on a refi, but I’m not sure it’d be entirely worth it yet given closing costs. Comps are pushing higher though, so if we’re confident it’d appraise for $100k+ next year we may end up doing it.
