How much work is too much work????

[Michael Zuber]

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

[Peter Giardini]

Based on the information you provided this looks like a deal... and a fairly decent one at that.

I believe part of your uneasyness is just the size of everything. Doing a 10 unit renovation, managing that many tenants, etc., can be intimidating.

Also, I sense that you are unsure how to take this down from a financial perspective. There are probably lenders who would do this deal...

If it were me, I'd be looking for the sellers to carry at least a 20% - 25% second, no interest for 18 month loan, payable in five years.

Then I would approach lenders seeking 70% financing that includes the purchase and renovation costs. You would come to closing with 5% - 10%... and if you got it at the right price... you could end up with very little of your own funds in the deal.

Just depends on how well you negotiate the transaction.

PM me for further insight.

Good Luck!