Advice on a Strategy to Acquiring this 12 unit apartment for Buy and Hold (Make a deal and Renovate)

2 Replies

Hi Guys,

So I have come across a 12 unit apartment complex (6 separate buildings, 2 apts each (2 bedrooms) that Im thinking about buying and holding. They are off the market. and seem to need quite a bit of renovations to bring up to a value where Id be able to rent out for a nice cash flow, and attract ideal tenants. Its owned by 3 individuals who inherited and they've lost anywhere from 15 to 20 separate units to the state so im guessing their motivated. Tried to sell for $350,000 about 5 years ago, but nothing went through. Properties aren't on the market and after driving through, I noticed that the tenants dont seem to be ideal. My source who is friends with the owners brother says that several of them haven't paid rent in months.

The neighborhood isn't bad, just seems as though it has landlords who dont value the quality of their property, never did improvements or kept it up, so it can be potentially a good building

After doing some due diligence, It doesn't even have a building value under the property appraisal site.

Im surely going to have to get a lawyer involved to make sure everything checks out and of course the title company to see about any liens.

Im wondering how would you guys go about acquiring this property. I know you don't really recommend taking on a project that needs work but I can just tell it culd be a great investment. It really has potential. With a good rehabbing, and vision, im sure each unit could rent for about $550-$700 a month. I have about $10,000- 15,000 cash to put toward this and pretty good credit.. My dad is also willing to take this venture up. They are asking $100,000 but after checking this place out, they should be giving me $5,000 to take it off them lol. Being that they seem to be motivated to sale, how should I approach this. Renovations should cost somewhere from $20,000- 40,000.

1- How would you go about negotiating this deal? What options do I have to get the best deal possible

2- What is the deal you would make?

2- Strategy to use to buy the property to pay it off, using cash and credit, or bother, as soon as possible and generate a positive cash flow?

B) Is there any way to use as minimum cash possible

Long question but I would appreciate you guys feedback.

Hi @Brandon Davis

No expert here but here is my though process on this...

first some quick conservative math, assuming you pay the full 100k and take a high interest (10%) rate investment loan (lumping in 60k for rehab, evictions, and some marketing) perhaps even private money.

MONTHLY INCOME
Rent:
$600 x 12 = $7,200

MONTHLY EXPENSES
Mortgage:
$1,400
Vacancy: $120
Repairs, Maintenance: $200
Property Manager: $400 (guessing here)

Total Expenses: $2,120

This leaves $5,080 per month in cash flow....

Whoa, are all your numbers right? If so maybe it is just the deal of a lifetime... So let's say all those estimates are 2x off because of factors currently unaccounted for.

$2960 /mo cash flow ....

Even if you only used half of that to pay down the loan you would own the property free and clear in 6 years.

So to answer your question if I wanted to put zero cash into it I would find a partner who would put all the money into it and let me take care of all the legwork and headache then split the profits with my partner 50/50 and we would both be making a killing at the end of the day.

Or, I would find some bank that would give me a loan even if the interest was high and work out the math I did above again to ensure it makes sense once all the numbers are evident. I would get private money for the rehab at a set interest rate then refinance the entire thing under one loan once renovations are complete to bring down the rate if possible.

If those numbers are right it would be hard not to make money. I would try to negotiate with the sellers but wouldn't get greedy, try to be the answer to their problem and give them a very attractive solution.

This is assuming all the research checks out and the probability of renting the units is good. Is it in winter haven? Seems like it wouldn't be that difficult to rent in that location... But again, I am not an expert.

-Keith

Perhaps it's because I don't have tons of cash standing around, I don't want partners, and I don't completely trust the risk equation of larger more expensive Class A projects - these are the only kind of rentals I buy.

Assuming you want a project and you can and will put in the elbow grease - If they are performing and in an okay location and in rentable shape with good bones, $6k - $7k income with value-add potential for $100k is a great deal.

They should cash flow enough to pay for almost all repairs except for large capital, but then again you should be able to save for those out of cash flow, or refinance in a few years.

If they are willing to hold the note for a couple of years, you could offer them a high interest rate if they finance the entire thing for two years, or maybe they can take %10 down. By cleaning these up, you could refinance them in two years with a base value well north of $350k. Worst comes to worst you can borrow $5k - $10k from your Dad and traditionally finance.

These kind of deals are more risky, but if you feel like you can mitigate your downside risk the upside is huge. But this is a hands on deal, you can't be passive.

The payoff is that after a few years you have fixed all the problems and will have a nice performer for low value plus a lot of equity.

All the best deals I have ever seen involve trusts, divorces, or inheritance situations where the parties that acquired the property didn't know what they were doing or devolved to the lowest common denominator. They are a mess and that keeps most people away, but if you want to do the work you can find stuff for quarters on the dollar