My first deal - Multi-Family yes or no?

[Phillip Le]

Hello,

I'm a newbie REI, looking for my first deal, so any advice will be much appreciated. I've been looking at this deal below, the asking price seems very fair but from the pictures, it seems like it needs a lot of TLC and rehab. I'm not sure how much the costs for rehab will be, but should I even consider this as my first deal? The cashflow is very tempting, which is why I'm very interested in this. FYI, I'm looking to buy it with straight cash (possibly borrowing from private lender), and will refinance it afterward. This property is in Louisville KY so any insights from the local investors will be much helpful, and thank you !!

 http://www.loopnet.com/Listing/20155023/3928-South...

[Jay Leisten]

Pm me and I'll put you in contact with a good contractor to give you detailed rehab costs. Wet finger in the air based on photos and not knowing what hvac looks like 20-30k repairs and you'll probably lose tenants during the rehab so account for 50% vacancy year one.

[James Wilcox]

@Phillip Le I can not personally comment on this location, but I think a key thing you stated stands out "I'm not sure how much the costs for rehab will be". This is something you have to know going into this type of deal. @Jay Leisten is providing a GC contact so I would take him up on that. The local REIA in Louisville will really be a big resource for you on location and reno costs.

Just from the quick look at the pictures and the information provided by the agent, I would be wary of this deal. Yes, the numbers are good on paper, but there will be many cap-ex costs and probably a lot of headache with this deal. I personally do not like SFHs that have been converted into MFH, even though on paper those homes can be productive investment properties. 

Here are just a few questions you need to ask yourself on a deal with this much "Needs a little TLC" on it.

• Why is the owner selling?
• Are you going to manage yourself? (plan for PM whether you plan to manage yourself)
• What are the deferred maintenance issues that need to be addressed?
• What reserves that you need to have in place when major items break? (furnace, water leaks, etc...)
• Are you able to afford the vacancy you may incur during your transitional period with a private lender?
• Will the property be able to be refinanced out before the private loan is due?
• Will you be able to get insurance on this property in its current state?
• Is bank statement available to confirm rent payments?

Without more information, I can not make a solid call on whether you personally should take a chance on this deal. However, there will be a time when you will have to make a judgment call and pull the trigger on a deal. I see this deal as one maybe a more experienced REI would take on and not a "newbie" though. I would advise on focusing on 4 doors or less so you will be dealing with more standard financing as opposed to commercial. Good luck on all your future REI ventures! Keep us informed on what you decide to do.

[Jay Leisten]

Great response Jim Wilcox. I'm familiar with the area as I have a property just on the other side of the track from this one. It's a very visible property and has potential extra income due to the parking lot. The key is really making sure your rehab $ is solid and don't over build the tenants unless you are confident you can bring a higher rent.

[Sam Shueh]

For income not for appreciation. It was not a good neighborhood other than Churchill downs. That was many many years ago. Looks like cheaper than I know factoring in inflation.  

Vacancy rate? Eviction rate?

[Michael Boyer]

Just looked at the photos and I would have a pretty long list of repairs, fix ups, concerns (pages and pages and pages).

I love horse racing, but this one looks like a long shot for the novice, apprentice property jockey...

I would think you have some stakes level tenant and property issues to handle right out of the gate (I can see potential mold, maybe lead paint, vinyl asbestos tile, habitability issues, lots of remodeling etc.).... Potentially tough situation from day one. And I have not even met the tenants or got the disclosure, rent rolls, numbers etc....

I would opt for a maiden race to start--a better maintained and maybe even higher end first property in a better situation--then maybe this would be a race for later on down the line.

Then again it is not my circuit or home track so talk (alot) to professionals in your area as mentioned (contractors, property managers, realtors, investors, etc). Get the full picture before making the bet....Long shots can come in big if you have the right situation and information.

Best of luck....

[Jay Leisten]

Michael Boyer that may be the best racing inspired post ever!!!!

[James Wilcox]

@Michael Boyer yes, well played sir. Well played. lol