“My breakthrough property,” states real estate investor, author and educator Wright Thurston, “was a 24-unit property comprised of two 12-unit buildings. It took me from the little league to the major leagues.”
Until then (1982), the young IBM executive had invested in nothing larger than two and three-unit buildings. Wright and his family lived in Alaska at that time, and it was becoming clear to him that larger multiple unit properties were the way to go.
“We were living in what was at the time the single most expensive city in the U.S.– Fairbanks, Alaska during the Alaska Pipeline days,” he explains. “We realized that it made more sense to invest in multi-family units rather than in single family houses, or even duplexes or triplexes.”
“To give you an idea of how expensive things were, the average cost of a single family home back then was in the $140,000 range and a gallon of 2% milk cost anywhere from $3.50 to $5.00 a gallon.”
“Because of high prices, it was virtually impossible to invest in a single-family home and then rent it out for enough to cover the mortgage payments. So I had been looking for a multi-unit property because I realized (1) the cost per unit would be less, (2) the competition would be less, (3) my time investment would be less because I could delegate some responsibilities to an on-site manager, and (4) I could still cover expenses even if there were a few vacancies. There were all kinds of advantages.“
Finding a “Diamond in the Rough”
One day, Wright found a classified ad in the newspaper that appeared to be exactly what he had been looking for. It said that a 24-unit property was for sale for $325,000. The price seemed incredibly low–until he went to see it.
“How bad was the property?” asks Wright. “Have you ever been in a building where you didn’t want to bump up against anything because you were afraid you’d get something on you? That’s how bad it was!”Wright returned home to tell his wife Janett that the property was a major loser. But Janett reminded him of something. “Isn’t it the worst property in a nice area?” she asked. “Yes,” said Wright.
“And doesn’t it have all the right things wrong with it?” “Yes,” he answered again.“Couldn’t you use your management skills to turn it around?” she continued. “Yes!” said Wright as he bounded for the telephone to call the real estate agent.“Wright,” cautioned Janett before her husband reached the phone, “you can buy all the property you want–just don’t use any of our money.” “No problem, honey,” he called back as he was dialing the number. “We don’t have any anyway.”
As it turned out, the owner was a motivated seller who worked out of state. He owed back taxes and assessments were due. He was a real “don’t wanter.”The seller was asking $325,000 with a $40,000 down payment. The remaining $285,000 would be satisfied by Wright assuming the existing private first mortgage and the seller carrying back a second mortgage for the balance.
Making a good deal better
Wright agreed to the price and terms, but with two modifications. First, he wanted to split the down payment by paying $20,000 at closing and the remaining $20,000 in 30 days.This would give him a chance to get the down payment money because he knew he would receive prorated rents and security deposits at the closing (which he could put toward the second $20,000 payment).
The seller agreed.Second, Wright asked the seller to subordinate his interest in the property so he could use the property as collateral to borrow the funds needed to fix it up.Again, the seller agreed, on the condition that Wright would not borrow more than $60,000 and that Wright would give him a $60,000 note secured by his home until Wright could show him receipts proving that the $60,000 had been spent on the property. Wright agreed, and the sales agreement was written up and signed
Getting the money
During the next few days, Wright pleaded with banker after banker to grant him a $40,000 loan based on his clean credit record. He finally found someone willing to give him $20,000 on a short-term commercial note.He was halfway through the race, but the last lap was the toughest. “I wore out the knees of my suit pants groveling in front of every banker in town,” he admits. Rejection followed rejection.
At one of the very last banks left, Wright finally got his loan by promising the banker he would deposit all of the rent money from the property (over $120,000 per year) into that bank each and every month.Wright got his money, closed the deal and spent the next six months fixing up the buildings, using the four-part improvement program he now teaches throughout the country.
Cashing in
Eighteen months after Wright acquired his first “diamond in the rough” for $325,000, the property appraised for $850,000. That’s a $525,000 increase in a year and a half!Making a great deal even better, Wright refinanced the property (after separating it from a 3/4 acre piece of land to the side of the buildings), paid off the two seller-carried mortgages at a discount and walked away with some loose change in his pocket.
How much loose change? Try $268,000. “And that money was tax-free to us until we sold the property,” adds Wright.Plus, the 3/4 acre commercial lot separated from the property appraised for $105,000. So when the smoke cleared, Wright had $268,000 in his pocket, a $105,000 free and clear commercial lot and over a quarter of a million dollars worth of equity in the 24-unit property.
Add all that to a positive cash flow that at times exceeded $6,000 a month, and you have a real estate diamond of immense proportions.Wright Thurston soon took off his IBM suit and became a full-time real estate investor and educator.