BiggerPockets

The numbers on this deal seem excellent, but I need help on due dilgence. This smells fishy to me.

Tri-plex with 1/1, 1/1, and 2/1. Rent $400, $400, $500. REO asking price $35k, located in neighborhood of $35k SFRs. Tri-plex is a converted 1900's SFR.

2% rule: 1300/35000 = 3.7%. NOI = $7,800 (50% rule). Rehab cost is unknown at this point, assuming $30k rehab and it still meets 2% rule.

Trulia claims it sold in June 2009 for $300k. 89% depreciation in 5 months! How is that possible? Also, even if June buyer never made a single payment can they foreclose quickly enough to have it back on market in November?

Things I need to research:
Rehab costs.
Is the tri-plex conversion legal? Could they make me unconvert?
Check for mold, dry-rot, termites, toxic waste, lead, and asbestos.
Have professional building inspection.
Roof inspection.
City has new ordinance requiring all rental property to be
inspected and brought up to code (I'm surprised that's legal).
Find out implications for this property.
Anything else?

Comments? Am I going to regret this or love it? What's the gut feeling of the experienced people here?

I found the ordinance online, and it doesn't look too bad. It requires compliance with the code in effect as of the date of construction, which in this case is circa 1908 for the main structure and who-knows-when for the conversion. In addition, it requires inexpensive safety items like GFCIs and smoke detectors.

The 300k sale you see on Trulia is probably the bank taking it back. They numbers that it show have nothing to do with anything.

From a numbers standpoint it looks good. You have to be careful with really properties this age, hopefully everything else in the neighborhood is a similar age.

Also, you mention that there are not a lot of other triplexes in the neigbhorhood. That is not good, even if it is legal, you don't want to be the weird property on the street unless you can profitably fix it.

Your first stop is to check if it is a legal triplex.

Good lucky.

I would be take a good look at the utilities and how they are metered if this is an old conversion. If they are land lord paid utilities because they are not separated, you can end up with some really high expenses since old homes bleed a lot of energy if they haven't been updated.

For that price I would buy, fill the place up and collect the money. What is the worst that can happen? Just don't take the place in your personal name and everything will be good.

dennis, there's another thread on here about slumlords...check it out