Hi. My name is Ebony and I am new to real estate investing. I've made an offer on a few deals but was out bidded. Recently, I came across a property. The property is located 3 hours away from me. I am in Houston BTW. The property has 6 individual apartment homes on one lot. Each home is 476 Sq ft with a 15 sq porch. All homes are renting for $600 and that includes their utilities and they are all on month to month leases. Apparently, there is a waiting list to rent them. In addition to the 6 apartment homes, there are three empty lots being sold with it. This property is located in Corpus Christi. They were asking 180k. I offered 140k and they countered with 155k final offer, which I accepted.
Currently, I have the property under contract. They have given me a 30 day option period with 60 day close. Here is where my questions start. The property was owned by an older woman who recently passed away. It was heired to her grand child who does not want the property. The owner who passed kept very poor records. There are no rent rolls, no leases nothing! To make things more complex there are absolutely no other comps to compare it to in the area. So it would need a full appraisal to even see how much it is worth. I have not seen the property yet to estimate repairs as I have just placed it under contract and it is three hours away.
I have a few questions and need suggestions. All help is appreciated as this my first and apparently big deal.
What do you suggest I do during th 30 option period seeing that the property is 3 hours away?
Would a hard money lender or conventional leander be best for this deal? I have the 25% down payment but it would eat up my liquid capital.
How much do you think something like this is worth based on the numbers given?
Should I take out a loan just for the property and just continue to lease it out? If it has a lot of equity refinance and pull out cash for repairs and renovate the units as they become vacant?
Or should I take out a loan for the property and repairs upfront and try to renovate all of the units at the same time, which would require me to get the tenants to move and then raise the rent with new leases?
Last question. What should I do with the three empty lots that come with it? They are all adjacent to the property.
- If I were buying a place with poor records and no leases, I would require an "Estoppel Certificate" from every current tenant. It sounds fancy but it is just a piece of paper that documents the "current arrangement" for each unit -- the monthly rent, monthly due date, utilities, lease expiration, etc. Have it signed by both the tenant and the current owner to ensure it is correct.
- When's the last time this property flooded?
- I'm not an expert but I think a 6-unit multi-family appraisal would likely rely on the income method just as much as finding comparables... $3600/mo gross rent on a purchase price of $155k is pretty fantastic, so unless the property is in very rough shape, I would be surprised if it did not appraise.
- The cash flow on this property sounds strong enough to support the higher hard-money interest rate if you are really opposed to dropping a 25% down payment.
- It is impossible to value the place without seeing the condition or the neighborhood. Again, $3600/mo gross rent on purchase price of $155k is pretty excellent. But if they didn't have any other offers above your $155k, then I would bet that the place needs a fair amount of work or is in a less-desirable neighborhood.
Hi Tim. Thanks for your reply. The current owner who did inherit the property did make each tenant sign a document with their lease start and end date and how much is due. I do have copies of those. I pretty much put an offer on the property as soon as it listed. From what I was told the owner was an older woman who passed away in June and heired it to who grand child who just doesn't want it all. So she was basically willing to accept anything. It also comes with three empty lots. The houses do not inhabitable but does need work. However, they are not located in a desirable neighborhood.
This sounds like every property I buy. I'm lucky to get keys! I wouldn't worry about that as the items you mention are the SAME items that are going to cause you to get a good deal.
You're paying $25k/door for something that rents for $600/door. That's a great deal. I'd 100000% buy it. Then get it stabilized and running properly. Even if that just means operationally. Then list it and sell it for $45k/door in 6 months, make $300k.
Don't let those negatives dive you away as they're baked into the price. If you want perfect/clean/turnkey those are available -- but you'll pay for them. You'll pay $45k/door for the same property that someone else paid $25k/door for because they were fine with the risk.
Thanks Cody for the response. That is something to think about. Also those six homes also come with three vacant lots behind it. I haven't even thought about what to do with that.
Howdy Ebony. Do you still have this property under contract? If you’d like someone to look at this property in person, I’d be willing to take a look at it for you and help you out with resources. I am a flip and buy and hold investor here in Corpus.