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No Money + Creativity = $50K in Equity Plus Cash Flow

by Keith Parsons   

Last fall, I found a 10-unit apartment building in a suburban town just outside where I live that was being used by an elderly lady as a single family residence. She had purchased it a few years back so some of her children and grandchildren could live with her (in their own apartments) as she got older and needed their help.

The building had tons of charm (built in 1931) and was located in a nice, little town adjacent to a cute historic downtown area right on a corner. It had a new roof, new electrical, new plumbing, and it even had a swimming pool that she had put in for her grandkids. The kicker is that it also came with an outbuilding (which faces the side street) that she operated as a fully-equipped coin laundry.

She was asking $155,000, which was about $25,000 less than an analysis that a Realtor had done a few months before, comparing the property to other single family residences in the area. But I didn't see this property as single family residence. I saw 10 UNITS (that would rent in this area for $350 plus utilities) plus the coin laundry, which in it's present condition was netting about $400 per month after expenses.

After several conversations with the lady I agreed to pay her the $155,000 that she was asking if she would carry a note for $150,000 at 10% for 10 years and let me get in for just $5,000. Sounds great right? Just one problem. I didn't have the $5,000 cash to do the deal. So here's what I did.

I set up closing for 90 days out (She needed that long to get out.) to give me time to find the money and arranged with her to give her the down payment 30 days after closing. At first, I thought about just finding a partner, but then I remembered the laundry equipment.

I knew at closing I would get clear title to all the commercial washers and dryers--about $12,000 worth. So, I went to the bank right around the corner and arranged to borrow the $5,000 I needed for the down payment against the equipment once I owned it.

I started advertising the apartments a couple of weeks before the close, and the day we closed I took checks for deposits and first month's rent from tenants for move-in dates 30 days later. I used that money to clean the carpets and paint the walls and do a little sprucing up, and I now have a property that is already paying for itself.

Oh, and as for the coin laundry, I cleaned it up, painted the walls and floor, and added a few amenities like folding tables and a change machine. It's now clearing nearly $1,000 per month.

I figure, based on other apartment buildings in the area, that the building is already worth $200,000+ if we sold it today (giving us a $50,000 equity).

Plus we have a positive cash flow from the building itself of about $200 per month. And to top it off we're making another $1,000 per month from the laundry. I'd say that's not a bad return for a few conversations, a little creative thinking, and a few hours of painting and clean up!

 
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