Financing and partnerships
3 Buildings, $2M, $100K Down: My Triple Seller Finance Deal
Three side-by-side buildings in Ephrata, WA on three seller-financed contracts: $2M purchase, $100K down, 4.3% blended rate, and a path to $4M in value.
I'm standing in one of the nastiest units I've ever bought, and I could not be happier about it.
This is our triple creative finance deal in Ephrata, Washington: three tired buildings, side by side, picked up on three separate seller-financed contracts. Twenty-one multifamily units and five retail spaces. It's the biggest renovation project we've taken on, it's the first retail in the portfolio, and one of these buildings is genuinely the grossest thing I have ever purchased.
Related reading: Inside a $900,000 Seller Financed Renovation in Downtown Ephrata
The average interest rate across all three contracts is about 4%. Total purchase price was $2 million, and we put $100,000 down on the whole thing, because one of the buildings paid us to buy it.
Let me walk you through each property, then show you exactly what the numbers look like.
Building One: The 12-Plex and the "P Unit"
The 12-plex is the kind of property I love buying. Simple little building, tired, and we're going to absolutely deck it out. When we're done with it, it's going to be gorgeous.
We're doing exteriors and interiors: new floors, new appliances, and we've already redone all the plumbing and electrical.
One of the units in there we used to call the P unit. It was covered in cat feces and urine. The thing reeked. Getting it stripped to the studs was a whole hazmat job.
Now we're rebuilding it with new doors, new trim and new cabinets. It's a small two-bedroom at the back of the building, with glue-down LVP going in. The whole building is going to look brand new.
Building Two: The 9-Plex I Chased for Three Years
This is the newest acquisition and the star of the deal: a mixed-use nine-plex with three retail spaces downstairs.
The building has been neglected for a long, long time. I've wanted to renovate it for three years, and it took three years of negotiation to finally close it. We got it seller financed, and here's the structure that makes it special: the seller financed 50%, a private money lender financed 60% of the purchase price, and so we closed at 110% financing.
Related reading: How I Bought Three Properties With $0 Out of Pocket in Washington
That means I got paid $50,000 at closing to buy this building. Negative 10% down. How awesome is that? And of course we should get paid, because we're about to spend real money on it.
The upstairs units have good bones. One has a layout I genuinely love (very spacious, huge bedroom) and we're stripping it down to the studs anyway. Another has a scary bedroom with a cool accent wall. I'm still on the fence about whether we encapsulate the popcorn ceilings or just take them off.
There's one unit that's much cleaner than the rest and, surprisingly, is getting more construction than any of them. It has a random non-conforming bedroom with the bathroom off it: a master bath and a bedroom with absolutely no egress, which means it's not a legal bedroom, which means the unit is still technically a studio.
What we'll do is move the door, build a proper bedroom with egress through the existing window, open up the wall so the bathroom comes off the living room instead, and open another wall into the kitchen for one big open space. Rip it to the studs, reframe, and go from there.
This is one of those deals where I walk in and think: this was a slum, and we get to go deslumify it.
The Retail: A Bail Bonds Office With Its Own Jail
Retail space number one is the old AAA Bail Bonds office in the historic Bell Apartments building.
The leaks have been addressed. The ceiling has not, so that part is still nasty. Otherwise it's a super simple space. The wood floors are filthy but in great condition, and I believe we can salvage them. The room just keeps going: there's an office in back, and a random jail cell, which we're probably keeping because it's cool.
Between the three buildings we're adding three more retail spaces beyond what's already leased. They're tired and beat up with ceilings that have fallen in, so we're going to the studs on all of them.
The central retail space is the biggest, and I still have no idea what it should be. There are areas with the classic exposed brick. The drop ceiling is mostly, well, dropped, but I liked that, because being able to look up into the plumbing helped me enormously with due diligence. Up there you can see a lot of PEX, the black plastic plumbing, with only a little bit of old galvanized steel left, which we'll get rid of as part of the project.
That's exactly what I want to see in these old buildings: a lot of the old stuff has already been replaced. I originally quoted for worse.
Ideas I've heard for that space so far: a tattoo parlor, a laundromat, a cosmetic salon. It's deep (it goes back a long way) and I'm still taking suggestions.
The 9-plex alone we bought for $600,000. There are no payments whatsoever on the mortgage for the first six months, which is hugely helpful in getting through a renovation. Nine units downtown for $600,000, and I think we get the renovation done for under $225,000. Fully stabilized in this area, that building would be worth about a million. We're at roughly half price.
Building Three: The Five-Plex Above Jordan's Barber Shop
This one we call Lily. It's a five-plex with a barber shop below: Jordan's Barber Shop, currently leased, and he's been a tenant of mine for a while. We love him.
The building came into the LLC with the new partners. The unit I visited needed a complete renovation, including floors, windows, and a kitchen. Contractors were preparing quotes during the visit.
Look at the size of the place: city hall is right outside the window, so when I say we're downtown, we're downtown. There's a walk-in pantry my wife is working on, a first bedroom with a vanity-closet combo, and a bathroom where everything is dated. The tub is probably from 1972 and is nasty. That's getting ripped out down to the floor, along with the ceiling fan, though the walls are fine and there are some cool accent pieces we'll keep.
There's a bonus bedroom at the back that is legally a bedroom. In Washington State you don't need a closet for it to count, but you do need egress, and that window is about the minimum size. It barely qualifies. Both bedrooms share the big master bath.
Best guess, the unit is around 600 square feet. Finish this one and the building is done: it's the closest to complete of the three.
The Numbers on the Whole Deal
Here's what the acquisition actually looked like:
- 12-plex: $1.1 million, 10% down: $110,000
- Five-plex: $400,000, 10% down: $40,000
- 9-plex: $600,000 at 110% financing: positive $50,000 at close
That's a grand total of $100,000 down on a $2 million total purchase price. Pretty close to free real estate.
Then we're injecting about $350,000 to get these where they need to go. That covers regraveling one of the parking lots, painting the exteriors, fixing all the units, interiors, some electrical, some plumbing, adding a laundry room, and every renovation you saw in the walkthrough. That capital came from the partners who bought into the LLC with us, myself included.
So all-in, down payment plus renovation, we're at $450,000. We owe $2 million of debt. The notes are between 4% and 4.5%, which gives us a blended rate of about 4.3% across the whole thing.
Fully stabilized, and conservatively (assuming market rates don't increase, which they probably will) net operating income across the three properties should land right around $237,000 per year, factoring a 5% vacancy. That's once the retail is leased, which will take a little time, but after about a year here that's the number.
On a 7 cap, $237,000 of NOI is $3.4 million of real estate. On a 6 cap, it's $4 million.
We owe $2 million, and we only spent $450,000 to do it. The goal is to turn that $450,000 into $1.5 to $2 million of total equity. There are three partners, each owning 33.33% of the real estate.
That is a lot of money for everyone.
Key Takeaways
- Three side-by-side buildings, three separate seller-financed contracts, one deal. You don't have to buy a portfolio as a portfolio.
- The 9-plex closed at 110% financing (seller carried 50%, private money covered 60%) so we were paid $50,000 to acquire it.
- Six months of no mortgage payments on that building is what makes a heavy renovation survivable.
- $2 million of real estate, $100,000 down, blended 4.3% interest. That is what creative finance looks like when it stacks.
- Non-conforming bedrooms are opportunities. Egress is what makes a bedroom legal in Washington, not a closet.
- Look up. A dropped ceiling that lets you inspect the plumbing is free due diligence, and finding PEX instead of galvanized steel changed my renovation budget.
- Target: turn $450,000 of partner capital into $1.5 to $2 million of equity, split three ways.
Watch the full walkthrough above to see the P unit, the jail cell, and just how rough these buildings were when we got them. And if you've got a good idea for that big central retail space, leave it in the comments: I'm genuinely still deciding.
If you want to learn how to structure deals like this, you can find the mentorship at mentorship overview, download our free course on getting started in multifamily, and join the free Skool community where we break these numbers down together.
Read the episode transcript
0:00 Welcome to one of the nastiest units in 0:02 this building. Now, we're completely 0:03 renovating these. There's part of the 0:04 triple creative finance. I'm in afraid 0:06 of Washington right now. This is part of 0:08 our triple creative finance deal. I'm 0:09 going to go through every single 0:10 property in this video, but this is the 0:11 12plex. We picked up some tired 0:13 buildings on creative finance. All three 0:15 buildings have a seller finance 0:17 contract. Average interest rate is 4%. 0:20 We're coming in doing the exteriors, the 0:22 interiors. We're doing new floors, new 0:24 appliances. We've already redone all the 0:26 plumbing and electric. This is the type 0:28 of stuff I love buying though. Simple 0:30 little property. We're going to 0:31 absolutely deck it out. When we are done 0:34 with this, it is going to be gorgeous. 0:36 I'll walk you through one of the units 0:37 here that's getting renovated as well. 0:39 Follow me. All right. We used to call 0:40 this unit the punit. This was covered in 0:42 cat feces and urine. This thing riaked. 0:45 It was a whole hazmat job getting this 0:47 all ripped down to the studs. Uh we're 0:50 now rebuilding it, putting in new doors, 0:52 new trim, new cabinets. This is a small 0:55 two bed uh right on the back of the 0:57 unit, but this is exactly what we're 0:58 looking at. New cabinets. This is glue 1:00 down 1:01 LVP. Whole building is going to be just 1:04 like new. All right, welcome to one of 1:06 the nastiest units in this building. 1:08 Now, we're completely renovating these. 1:10 This is part of the triple creative 1:11 finance deal. This is the newest 1:12 acquisition, mixeduse 9plex. So, 1:15 downstairs there's three retail spaces. 1:17 We'll tour those in a bit. I actually 1:19 see a lot of opportunity. We got this at 1:20 such a great price and we do have the 1:22 budget to ren this. We're going to strip 1:23 this bad boy down to the studs. I love 1:26 the layout here. It is actually very 1:28 spacious. There's a huge bedroom. The 1:30 building has been neglected for a long, 1:32 long time. In fact, I've wanted to 1:34 renovate this building for 3 years. 3 1:36 years in the negotiation to finally 1:38 close it. We got it seller financed. I 1:41 got paid $50,000 at closed to buy this. 1:44 Seller financed 50%. The lender, private 1:46 money lender, financed 60% of the 1:49 purchase price. So, we got paid 10% of 1:50 our purchase price at close. How awesome 1:54 is that? Get paid to buy this project, 1:56 which of course we should be cuz we're 1:58 spending some money here. Bedroom over 2:00 here is We'll see when we get the lights 2:02 back on in 2:04 here. But you have a kind of scary 2:07 bedroom with a cool accent wall. We're 2:09 going to see what we end up doing here. 2:11 On the fence on whether we encapsulate 2:12 or just take off the popcorn ceilings in 2:14 this place, but other than that, uh this 2:16 is actually very exciting. This is one 2:18 of the deals where I get in here, I'm 2:19 like, "This was a slum. We're going to 2:21 go deslumify this bad boy." Super 2:24 excited for this project. I'll see you 2:25 guys downstairs. This is a much cleaner 2:27 unit in this building. However, this 2:29 one's actually going to have more 2:30 construction, surprisingly. So, we have 2:32 over here, we have this random 2:34 non-conforming bedroom that also has the 2:36 bathroom off it. So, we have the 2:39 bathroom placed over here. So, you got a 2:41 master bath and you got this bedroom 2:43 with absolutely no egress. So, this is a 2:45 non-conforming, not exactly a legal 2:47 bedroom. So, this is still technically a 2:48 studio. What we would ideally do, move 2:50 that door there, build a bedroom there. 2:53 So, you walk in, you come around, we'll 2:55 open up this wall here, and this would 2:58 be your living room. So, now you have a 2:59 bathroom off the living room. You have 3:01 egress in the window there, open up this 3:04 wall to the kitchen, and you have this 3:05 nice big open space. There's a lot we 3:07 can do here. We'll basically rip this 3:09 down to the studs, reframe it, and go 3:11 from there. Welcome to retail space 3:14 number one. This is an old Bale Bonds 3:16 room. We're fixing the ceiling. The 3:18 leaks have been addressed. The ceiling 3:19 has not been addressed. So, that's 3:20 nasty. The rest of this super super 3:22 simple space. We'll see if we can't 3:24 salvage the wood floors, which I believe 3:25 we can. They're dirty, but in great 3:28 condition, but this should be a pretty 3:29 simple retail space. We'll figure out 3:30 what the exact right use is. Any ideas? 3:33 Please post below. Uh, but yeah, the 3:35 room just kind of keeps going. There's 3:36 office in back. There's like a random 3:38 jail. Probably just keep that cuz it's 3:40 cool. Follow me out front here. We're 3:42 going to be fixing up this building 3:43 right here. I'll give you another shot 3:45 from across the street here in a second, 3:46 but the old AAA bell bonds, the historic 3:49 Bell Apartments. This is going to be a 3:51 fun project. We're going to be adding 3:53 three more retail spaces, but we need to 3:55 fix them all the way up. They are tired, 3:58 beat up, ceilings have fallen in. We're 4:00 going to go to the studs on this. Very 4:02 excited for this project. This is going 4:03 to be a cool one. This is the biggest 4:05 one, the central retail space. I have no 4:07 idea what I want it to be yet. So, I 4:09 always appreciate ideas. Uh we have some 4:11 areas here that still have some of the 4:12 classic exposed brick. Uh drop ceiling 4:15 is mostly well dropped, but we'll be uh 4:19 we'll be fixing that. What I liked about 4:21 that piece is I can actually look up and 4:22 into the plumbing that helped me with 4:24 due diligence. If you guys look up 4:26 there, I'll see if you can see it with 4:26 me, too. There's a lot of PEX plumbing. 4:29 So, that's that plastic black plumbing 4:30 that runs through there. There's a 4:32 little bit of old galvanized steel 4:34 piping. So, you want to get rid of that. 4:36 That's part of our project. I originally 4:37 quoted, but what I liked about this 4:39 building is a lot of the old stuff has 4:42 already been replaced. That's actually 4:44 what I want to see on these buildings. 4:46 So, we're going to keep this space 4:47 pretty simple. I don't know what we want 4:49 to do with it. I've heard all sorts of 4:50 different ideas. Tattoo parlors, turn it 4:53 into a laundry mat, maybe a cosmetic 4:55 salon. It's pretty deep. I don't know 4:57 how well you can tell from here, but 4:59 this thing goes back a ways. This is a 5:01 large space. So, I appreciate your guys' 5:04 ideas on this, but yeah, this building, 5:05 we bought this for 5:07 $600,000. There are no payments, none 5:10 whatsoever on the mortgage for the first 5:11 six months, which is hugely helpful in 5:14 getting through the renovation of the 5:16 project. Uh, so 600,000, 9 units 5:18 downtown. Yeah, we have a lot of rena, 5:20 but I think we're going to get this 5:21 thing done for under 5:24 $225,000. It seems like a lot, but so 5:27 much of this is basic. I think we're 5:29 going to knock this out and make a 5:30 killing on this building. fully 5:32 stabilized in this area. This building 5:34 would be worth about a million, too. So, 5:36 we're about half price. We're gonna see 5:37 how much money we can squeeze out of it. 5:39 This is Lily. This is a fiveplex. We 5:41 have a barber shop below, currently 5:43 leased. We love him. Jordan's Barber 5:44 Shop. Been a tenant of mine for a while. 5:47 This one we acquired into the LLC with 5:49 the new partners. But look at this unit. 5:51 This one we're completely gone. So, 5:52 floors will be new, windows will be new, 5:54 kitchen will be new. I have contractors 5:56 quoting stuff right now, so ignore some 5:57 of the uh the humans in here. But look 6:00 at the size of the actual building. 6:02 That's city hall right outside the 6:04 window. So I say we're downtown. We're 6:06 downtown. You got a walk-in pantry back 6:09 there that my wife is working on. Follow 6:11 me this way. 6:18 Got bedroom number one with the vanity 6:21 closet combo. Swing over to the 6:23 bathroom. Obviously replacing this tub. 6:26 It is nasty. This is from probably 1972. 6:29 Placing the ceiling fan. Everything here 6:31 is dated. So, this will be ripped out 6:33 all the way down to the floor. Walls are 6:35 fine, so we can keep those actually kind 6:36 of cool little accent pieces here. And 6:38 there's one little bonus bedroom in the 6:40 back. It's legally a bedroom. You don't 6:41 have to have a closet in bedrooms in 6:43 Washington state for it to legally be a 6:45 bedroom. You do have to have egress. The 6:46 window is, I think, probably the minimum 6:48 size. Uh, but I believe this is a legal 6:51 conforming bedroom. Barely. Uh, they 6:53 share the big master bathroom here. But 6:55 this is what you're looking at. This is 6:56 probably best 6:59 guess,600 ft². Get this one done and 7:02 this building's completed. This is 7:03 project that's almost done. So there's 7:05 the triple seller finance deal. Now the 7:07 most important part, what do the numbers 7:08 actually look like on a project like 7:10 this? Well, we bought the 12 for 1.1 7:12 million, 10% down. So we put 110 down on 7:15 that. The five unit we bought for 7:18 400,000, also 10% down, so we put 7:20 another $40,000 down. Pretty close to 7:22 free real estate. the 9plex, the really 7:25 dirty building there with the mixeduse 7:27 retail. We bought for 600,000. We bought 7:29 at 7:30 110% finance. So, we actually got 7:33 positive $50,000 at closed. So, we did 7:36 negative 50k down for a grand total of 7:39 $100,000 down in the acquisition here on 7:43 a $2 million total purchase price. And 7:46 we're injecting about $350,000 to get 7:48 these where they need to go. We're going 7:50 to regravel one of the parking lots. 7:51 We're painting the exterior. We're 7:53 fixing all the units. We're doing the 7:55 interiors, some electric, some plumbing. 7:57 We're adding a laundry room, and we're 7:59 renovating all those buildings that you 8:00 saw us do. Everything that we walked 8:02 through there, those are the renovation 8:03 projects. With all of that done, we're 8:05 going to be spending about 350,000. We 8:07 brought that in with the partners who 8:09 bought into this LLC with us. So, that 8:11 capital is all capital from the 8:13 partners, myself included, into the 8:15 deal. So, we're all in down payment plus 8:18 renovation, 8:19 $450,000. We owe $2 million of debt on 8:23 this. Uh the notes are at four or four 8:25 a.5%. There's right in between there. So 8:28 we have a blended rate of it's about 8:31 4.3% interest on the entire thing. Now 8:34 fully stabilized we have a net operating 8:35 income between the three properties that 8:37 will be probably right around if market 8:40 rates don't increase which they probably 8:41 will but conservatively 8:44 $237,000 per year. That factors for a 5% 8:47 vacancy. That's once we get the retail 8:49 leaves. It will take a little bit of 8:50 time, but after about a year here, we 8:52 should be looking at about 8:55 $237,000 of net operating income. On a 7 8:59 cap, that's $3.4 million of real estate. 9:02 On a six cap, that's $4 million. We owe 9:06 two, but we only spent $450,000 on the 9:09 deal. So, the goal is to turn the 9:11 $450,000 into $1.5 to $2 million of 9:15 total equity in the deal. three 9:16 partners. Each of us own 9:19 33.33% of the real estate. That is a lot 9:21 of money for everyone.
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