SSS #306: Walnut & Champion SOLD!

Livin' La Vida Luna y Luca

The kids first time eating the cone. Thanks, Grandma.

Walnut & Champion SOLD!

I'm on a selling spree: 4 properties off my books in about as many weeks.

It started with Project Oliver & Project Silver Spring and continued with two rental properties I bought back in 2020.

They don't call it Separation Season for no reason.

Champion:

Champion is a 4-unit multifamily home in Collingswood, NJ. Each unit has 2 beds and 1 bathroom. We bought it in January 2020 for $240,000.

We spent roughly $160,000 renovating it as leases expired. The rent-roll was $3,600/mo when we bought it and $6,000/mo after we improved it.

It took about 15 months to complete our value-add business plan, at which point the property appraised for $589,000 (~$200K above our $400K cost-basis).

The last step in the acquisition process was to refinance the property into 30-year fixed-rate debt. We took $442K at 4.25% in March of 2021. Our Monthly PITI was $3,400, which was easily covered by our ~$6,000/mo rent roll.

Walnut:

Walnut is a 3-unit multifamily home in Delanco, NJ. Two units were 2 beds and 1 bathroom. The third unit was 4 beds and 2 bathrooms.

We bought it in September 2020 for $215,000. We spent roughly $45,000 renovating it as leases expired. The rent-roll was $2,700/mo when we bought it and $4,500/mo when we sold it.

It took 12 months to complete our value-add business plan, at which point the property appraised for $320,000 (~$60K above our $260K cost-basis).

The last step in the acquisition process was to refinance the property into 30-year fixed-rate debt. We took $256K at 4% in August of 2021. Our Monthly PITI was $2,100, which was easily covered by our ~$4,500/mo rent roll.

Why Sell?

We created roughly a quarter million dollars of value across two properties. Additionally, our monthly gross collectible income ($10,500) was ~double our monthly principal, interest, taxes, and insurance payment. ($5,500).

We had 30-year fixed-rate debt at 4.2% blended across both properties. Can't even sniff within 2% of that today.

We even put an affordable and competent property manager in place to take care of any minor headaches as they popped up.

So why sell?

We distributed zero cash flow over the entire hold period. Despite the rental income being 2x our PITI, we weren't able to take ANY cash out of these properties. Mainly because...
We put lipstick on a pig. Our "value-add" renovations were cosmetic in nature. We hardly did any structural or mechanical work. So while the properties presented well with new kitchens and baths, it was suffering under the hood. Various maintenance items ate all of our profits with no end in sight.
Property type and location attracted a below average tenant pool. It would take months to fill vacancies because we weren't willing to accept applicants with low credit scores or income that didn't exceed 3x monthly rent.
Lacking pride of ownership. I often felt like a "slumlord" providing this type of housing.
Opportunity Cost. At this stage of my career, I have a better use of the equity. Rather than letting the money sit dormant in these rental properties that distribute zero cash flow, I could use it to propagate my single-family development business.
Return on invested capital was high, but return on hassle was low. Despite having property management in place, there was always something that required my undivided attention. During the COVID eviction moratorium, half of our tenants stopped paying rent. Once that expired, that same half couldn't catch up and made us go the distance in eviction court. We also had trouble getting our insurance renewed a handful of times because of deferred maintenance.

Champion was the first deal I ever did as the "lead investor". Walnut was the second. I bought Champion as soon as we found out we were pregnant with Luna and Walnut sort of fell into my lap soon after.

I thought I was going to hold these properties for the long term, especially because of the favorable debt. But we tested the market and received offers I couldn't refuse.

I definitely don't regret buying these properties by any means. I earned a good return and learned even more. I'm looking forward to applying those lessons towards a bigger opportunity in the future.

✌🏽

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