Deal Analysis – Fourplex in Westminster, CO Opportunity Zone

I purchased this Westminster fourplex in a 1031 exchange from an out of state property. The seller and I worked together so they could have a closing time favorable to both parties. It was very much a “win-win” transaction. The property was attractive to me, because it was renovated which should keep maintenance and capital expenditures low for many years. Higher cap rates could have been achieved with four individual condos, but keeping it simple with one transaction to minimize potential 1031 issues was ideal.

This property closed in Q3 2019.

Investor Profile

• Buy and hold investor with the goal of buying at least one property a year.
• This property met the criteria he was looking for:
  • In the Denver metro
  • Above a 6% cap rate
  • Turnkey (minimal to no work)

Deal Quadrant: Networking

Read about the deal quadrant and finding Denver Investment Properties.

Investment Property Details

• Type: Multiunit
• 4 units
  • 2 bedroom, 1.5 bathroom
• Location: Westminster, 72^nd Ave between Federal and Sheridan
• List Price: $875,000
• Purchase Price: $850,000
• Why we liked it:
  • Complete rehab (new sewer, plumbing, windows, etc), not just cosmetic
  • Located in opportunity zone
  • In unit washer/dryer
  • Townhouse style units

Property Contract Details

• Finding the property: Before listing my relinquished property in Reno, NV, I started hunting for a replacement property due to the 1031 exchange timelines. I found this through his network.
• Under contract: Below ask. Four month contract time frame to make timing favorable. Contract deadlines passed before the 45 day ID window so both parties were committed and earnest money was hard.
• Inspection Concerns: None
• Inspection negotiation outcome: None

Property Financing Details

• Lender: Conventional
• Loan Type: 25% down, 30 yr fixed at 5.25%
• Appraisal: First appraisal came in $170,000 low! Junk appraisal. Second appraisal came in above contract price.
• Seller Concessions: 0
• PMI: None
• Interest Rate Buy Down?: Yes

Spreadsheet Rental Analysis

Property Operating Expenses

First Year Returns

Conclusion

The fourplex worked out great as a replacement property in a 1031 exchange. No capital gains taxes were paid!

The underwriting is conservative. The first few years should cash flow closer to $1,000/mo with lower repairs. It’s always good to be more conservative than not!

In Q2 of 2020, I took advantage of lower mortgage rates to refinance from a 5.25% to a 3.625% rate. Since it was within one year, the lender could to a “Drive-by appraisal” for a reduced appraisal fee. I brought about $11,000 to closing for the refinance. The refinance saves $600/mo in mortgage expenses! It’ll increase the cash flow by an additional $7,000+/yr. It’s less than a two year breakeven period. One of the great things about real estate investing is the ability to refinance properties to pull out equity or increase cash flow.

Video: Deal Analysis – Fourplex in Westminster, CO Opportunity Zone