This deal was sourced off market, secured with conventional financing, and provide the investor a 8.06% cash on cash return.
Real Estate Investing | Everett, WA Case Study
Deal Overview
- Sagareus represented both buyer and seller on this off market deal.
- The underwriting demonstrated an obvious value add opportunity.
- Conventional financing was utilized with a $50,000 hold back from bank until repairs were complete.
- Initial Analysis + Analysis 24 months later
Deal Source
- Sagareus sourced this deal from one of our Direct Mail programs.
Initial Analysis
- Purchase at 4.7% Cap Rate.
- $60k reno budget. Increase rent 24-31% (~$200-300/month per unit). Stabilize & hold; Normal increases; Eventually 1031 exchange.
Due Diligence
- Full Inspection. Seller cleaned crawl space, installed new vapor barrier, and repaired 2 electrical panels.
- Confirmed Renovation Budget; Solidified Post Close plan / priorities.
Financing
- 25% conventional - US Bank; $50k hold back until repairs were done.
Stabilization
- Focus on common areas - Exterior Lighting, Laundry Room security & cleanliness, landscaping.
- Repaired deferred maintenance issues in every unit.
- Bathrooms - Full renovation:
- Day 1 - Shower / bathtub
- Day 2 - Toilet, Vanity, Mirror, Light Floor; Day 3 - Final Painting / Touch Ups
- 2 units / day, 3 day process
Outcome
- Currently 6.5% Cap; Sold at 4.7% Cap = $1.3m Value.
- Tax, insurance, utilities higher than anticipated
- Electricity + Maintenance lower than anticipated
Lesson(s) Learned
- Value of Maintenance - Control Maintenance Costs
This deal solidified our theory that in house maintenance company makes sense for our model. Since building the full service offering, our in house maintenance team and associated maintenance savings is consistently one of the top 3 reasons our investors work with us.
Renovating properties while occupied presents a set of challenges, but in this case, we found that the renovation was only 2-3 days per unit and the Residents did not mind. This allowed us to maintain cash flow during renovation and reduce the overall cost of the project.
2 months later we posted the rent increase notices; We had ZERO notices to vacate as every resident felt the increase was justified.
This is another prime example of our management mantra:
Happy Residents = Productive Properties
