Rentals #22, 23, 24

5 Replies

We have a deal to add 3 more rental properties to our portfolio, bring the total to 24. This particular deal is a long-term investment play, with no immediate cash flow, but good ROI from loan principal paydown, and good cash on cash down the road. Here are the details:

Three 1 BR condos in a complex where we already own quite a few units were for sale by a tired owner.  Two of the units, located one on top of the other, were fire-damaged about 6 years ago, and were completely rebuilt by insurance.  They have new drywall, new hardwood floors, new kitchens, new bath, new windows, etc.  The only thing not updated is HVAC, which is in the basement and not affected by the fire.  The third unit is in a different building where we already have a unit, and needs substantial updates.  We've updated 13 identical units over the past 2 years, and know with confidence that renovations and new appliances run around $3500 - $4,000 to get them to the point where we're proud to rent them and they rent quickly. 

Financials:

$80,000 purchase price negotiated for the package ($28k x 2 for rebuilt units, $24k for older unit).  $16k down (20%), with land contract financing for the balance at 5% for 6 years.  Rent is $550 x 3 = $1650, LC payment is $1030/mo, and with taxes, insurance, maintenance, lost rent etc. we'll be losing about $100/mo cash flow.  Principal repayment averages $10k/yr.  Cash flow will be $300 x 3 = $900/mo = $10,800/yr from year 7, on total out-of-pocket cash outlay of ~$27,000 over 6 years.  Not a get-rich quick scheme, that's for sure, but seems like a good opportunity because incremental workload is low given our existing units there.

@Frank R.Any equity gain going in would come from raising NOI on the entire package of condos and selling them as a MF package, where price = NOI / cap rate. There isn't much of a market for these units as retail condos any more, unfortunately. In fact, they were apartments at one point, converted to condos, and now are in essence reverting to apartments. As apartments, although I haven't tried to sell or refinance them, I believe based on similar units that they are worth about 20 - 25% more than I'm paying.