Good value-add deal. Tenant challenge. Advice?

12 Replies

I just got access to an off market deal for $150K. Its a 1550 sqf duplex, looks like its in pretty bad shape on the outside. Its been cited by the city for siding repairs and yard neglect. Comps for equivalent properties in the area or in the high $300k. property is currently generating $1400 a month, though can easily generate $2800-$3000 with good repair (based on surrounding comps). Seller will not let me see the inside of the property, to "not disturb the tenants". It might be a full rehab + HVAC scenario for all I know. This would be an out of state investment, so there is an added challenge there. 

The issue is that this duplex is occupied by tenants who have been renting the place for many years. How does one handle a situation like this for a BRRR strategy?

Also, I don't have a super solid team set up in that location yet, which makes me somewhat nervous to jump into this level of unknown. 

Thoughts?

I would not buy an out of state deal without having a solid team in place first especially to BRRRR.

If you’re planning on rehabbing and doubling rent, the existing tenants will have to go.

Whether you make that part of your offer (seller to deliver house empty), or you give notice when you close. It’s unlikely that the costing tenants can or will pay double the rent.

@Dori Arazi I’m not sure if you’re experienced real estate investor or not. Assuming you’re not how confident are you in those numbers? What’s the rehab cost?

Keep your emotions out of decision making process. You need to insist on a inspection and make your offer conditional on property being vacant at closing.

Keeping or dumping a tenant is normal business decision, assuming tenant is on M2M, no reason to consider ethics.

First I would be concerned about not being able to see the inside of the units. Makes me wonder what the owner is hiding. I would start but reading Tenant/Landlord Law and interviewing 5 lawyers. Choose the one that seems knowledgeable and you would work well with. Once you know what to do with the tenant find the rest of your team.

I totally understand that the owner doesn't want to disturb the tenants.

Make a low-ball offer, based on expectations of full renovation of both units. Add high earnest money.  Make it subject to inspection of the property. 

That will show the seller that you're a serious buyer (high earnest money, instead of $ 500 or 1000). 

You tell him that if he doesn't like the low offer, that you'd be happy to renegotiate, if you can see that it doesn't need full renovation. 

@Michaela G. , thanks for that angle. I didn't consider it.

Do you mind elaborating a little on how a high earnest money offer can help sweeten the deal? As you mentioned, I tend to put down the earnest money contingent on inspection. So if the deal falls through the seller will not be seeing that money. I'm trying to fully understand the added intensive. Is it purely a psychological show of intent? 

If you're willing to put down 10 or 20K cash, you're showing that you're not making 100 blind offers, but are serious about this property.