16 Unit that's 100% vacant! Anyone have advice on all vacant?

Question

Hello All...

I am looking at a 16 unit that is completely vacant..anyone have experience tackling a completely vacant apartment. Here are the details.

Michael Ealy · Answer

Christian,

One way you can profit from a vacant property is by looking into state and federal government housing programs. For example, there are homeless veterans and there's a government program to provide housing for them.

That's what I did with a 48 unit building. It's not exactly 100% vacant but it's almost entirely vacant :)

https://www.biggerpockets.com/forums/311/topics/644570-how-i-made-over-1-million-on-1-deal-after-6-years-of-headaches

In 60 days, I got to 100% economic occupancy.

6 years later...I made over $1M Profit on this project but getting it 100% rented was crucial and getting housing programs for special interest groups was the KEY.

On getting the deal funded...

One thing you can do too is negotiate seller financing with the seller. Tell the seller no banks will want to finance the project. Do a contract for deed but have the seller agree to subordinate this to a new first mortgage. You can borrow money from a HML as first mortgage so you will have enough to renovate the property. Once you renovate and then lease it up, you can refinance out both the HML and the seller financing.

Now having said the above, if you're a newbie and you have not done a single apartment deal yet, do NOT get a 100% vacant building. It's risky, time consuming, harder to fund and takes a lot more work. Stick with easier deals.

Makes sense?

Ronald Rohde · Answer

Be sure you have cash reserves to cover costs during a 2x renovation period. Then plan for a 6-9 month lease up. If you can do that, you're golden. Go in with a low bid!

Jay Hinrichs · Answer

I would also just want to make sure your not buying into a war zone and that's why its vacant..  Or some major structural issue.. I looked at an 80 unit in Jackson MS a few years ago 100% vacant Ravaged by clay soils.. So I would do a little more up front on the structure etc and the area .. but if it all checks out sounds like a fun project.

Erik W. · Answer

Prime candidate for creative seller-finance.  A two year master lease with exclusive option to purchase might work well, with a spelled-out agreement that for each unit you rehab the purchase price goes down by $X.  Then you get in there and hustle, get those units fixed up and the rent starts coming in.  You have no debt service and only pay a token rent (maybe $100/month/door?  It's more than he's getting now and you're handing all the hassle/maintenance/tenants.

You should be able to get enough units online in the first 2 months to generate enough rents to cover your payment to the owner.  After the second month, you should be at least 25% rehabbed and rented and might either cash him out with a commercial loan, or you can keep going "as is".

His security is he has title to the property, has an option fee from you ($5000?), and you are increasing the value of his property.

Your security is you have a negotiated good purchase price and are cash flowing enough to get back your option fee quickly and cover your rents to the owner within 60 days.

Put the Option fee in escrow, to be delivered to Seller upon closing or to be refunded to you if he tries to renege on the deal.

The downsides are if the Seller refuses to honor to exclusive purchase option, at which time you could sue him and obtain a judgment against the property, which will get paid off someday when he sells.  Or if the Seller does something stupid and someone else places a lien on the property which he can't clear to give you good title.  To mitigate these risks, cash out the deal ASAP to avoid having too much of your $$ tied up in the property without owning it outright.  Or your could stipulate that for each unit you remodel ($16K), he gives you a contractor's lien against the property for that amount.  That would make it much less likely he'd try to sell out from under you since once again he couldn't convey clear title to anyone else without clearing your liens, and you'd still have a portion of the 2-year master lease remaining.  I doubt many buyers would want to step into that kind of mess without him giving them a steep discount, reducing his desire to sell to anyone but you.

Get an attorney who specializes in real estate transactions to draw up the papers.  There will be other considerations beyond the scope of discussion here.  Basically, set it up to where both of you get what you bargained for if the deal goes as planned, and neither one party has an incentive to take unfair advantage of the other.

Christian Mercado · Answer

It's been vacant for many years.......mom and pop owners.

Rehab is 256k so that's no lipstick rehab.

Christian Mercado · Answer

That’s why I’m scratching my head and not making any moves...gotta dig in

Bjorik Mutize · Answer

Mom and pop owners still don't leave an asset 100% vacant unless they literally don't care to tend for it.

Something is up.

Christian Mercado · Answer

@Michael Ealy Definitely makes sense! Thank you! I will be bringing I my partner on this for sure..my only concern is being 70 miles away from the property as I'm sure it needs more attention than your average flip.

We might go hard money, but need to see if a few things check out first.

Christian Mercado · Answer

I’m driving, but I’ll check tonight to see everyone’s great input I’m sure. Thank you all!

Christian Mercado · Answer

Hey y’all, on the financing, this deal was presented to me by a wholesaler so I’m not speaking to the seller myself. Otherwise, I would ask for a creative finance solution.

16 Unit that's 100% vacant! Anyone have advice on all vacant?

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