I'm looking at buying my first property and have an investor friend who's looking to downsize his portfolio. The areas he invests in are C/D neighborhoods but he has done very well with them. He's done some major renovations on this one, it already has a renter in it, and has pretty good cash flow with a CoCR of about 32%. Additionally he's willing to owner finance 30k with me putting down 10k. Also, the lot is large enough to fit another house on so there's a possibility of fitting a modular home in that space.
The down side is the neighborhood, there won't be much appreciation, and only about 5k of equity going in. Also, the prop manager I wanted to use drove by and said it does not meet his min requirements to manage it (not quite sure what that means so need more clarification from him). I'm trying to balance that perspective and what I know about the neighborhood against my friend's success and his willingness to owner finance.
I'm wanting to use it for the cash flow to help save for another property, and to a lesser degree to just get in the game. I obviously don't want to get in the game at the detriment of my finances so looking for some advice on how you guys would proceed. Thanks for any help you can give.
I’d talk with other property managers there and call some of the landlords who own property on that street. Sounds like you’re concerned on getting into a bad neighborhood. $10k down is pretty low risk if it gets good cash flow. I’d be concerned on the tenant qualifications also. And make sure not a lot of additional capex is needed.
@Marc Rice Thanks for the advice. You're correct, I am concerned with the neighborhood but willing to manage those risks considering the cash flow. I wanted to make sure that I wasn't forcing it just because of that. Sounds like there's a little more due diligence needed, but the downsides aren't deal killers. Thanka again for the quick reply.
Yeah, if it’s a bad neighborhood/property you could view it as how little $ is needed to make it a safe habitable rental. You’ll want to be cautious because think of the tenant pool you’ll attract. If you get a bad tenant it could kill the deal if they don’t pay. Drive by it on Fri/Sat evenings to see the neighborhood at a different time.
Also if it goes south can you sell it or would it be of no interest to any buyers? Make sure title transfers and seller keeps 1st lien so you can sell if needed
@Marc Rice Thanks for these extra points. The tenant pool thing is big for me. While there's already a stable tenant in there now I know that can change quickly so definitely puting some weight on that point. That's one of the reasons I want to find a good prop manager...to help screen and find a decent tenant in case the current one leaves.
Did you end up pulling the trigger on this one? What area of BR is this in??
@Brian Mackey Not yet. It's in Dixie off of Plank Rd. I've been looking into a couple of other opportunities and financing options for those. There could be some revitalization efforts happening for that corridor that could improve the area but I'm trying to figure how much it will actually impact the area.
You never said what the rent is for the property ? We gotta hear the numbers to know the true story
"don't want to get in the game at the detriment of my finances"
This is the premise for 99% of Paralysis by Analysis victims.
You understand that everyone who is investing in real estate is doing so at the detriment of their finances. There are no 100% sure things. Things can go wrong with any investment.
Your job is to problem solve any issues and make it work.
Problem solving in my opinion is a major contributor to being successful in real estate investing.
@Dennis Wayne We haven't settled on final numbers yet for the seller financing but shooting for cash flow of ~$240 (after vacancy, capex, etc). Rent is $800/mo and CoCR is 26%. He'll sell for $40k with $10k down.