How much work is too much work????
I like to buy fixer properties but on occasion I come across an opportunity that feels like it might just be too much work. I’ll give you the highlights and you tell me what you think.
I have found a 10 Unit building that is in probate and being sold by the kids (4 of them I believe). Near as I can tell the building has seen no repairs in the last 5 years and has been milked for all it worth. Just a short list: Roof needs work, no paved parking to speak of, all units need 2K-4K of work (half of them are empty and uninhabitable). I also estimate that property has at least 4 big bins of trash and other goodies littering the property.
In the end I could see the building costing 180K, (30K down) and owner carry mortgage at lets say 7% for 5 years because no bank will loan on the property as-is. I suspect the building will cost 50K to rehab and make rent ready. Once full and we perform true tenant selection the building should produce $5,500 a month in income.
So for about 80K we could produce about 2K a month or 24K a year in positive cash flow. If I am doing my math in my head correctly that is a cash on cash return of 30%.
I can run all the numbers I want but something just feels off about this building. It could be that I am just comfortable buying houses and duplexes and not used to the bigger building or it could be my gut telling me that there is a couple of huge and nasty surprises hidden in the building.
Not sure which.
Have any of you stepped up to a bigger purchase that was just outside your comfort zone? How did it turn out?
Good Investing