Is "not at any price" in your vocabulary?

Multi-Family and Apartment Investing
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Is "not at any price" in your vocabulary?

Adam Bradley
Gardendale, AL · Member since 2017 · 47 posts · 18 votes

I'm in a situation where I'm not sure if the area makes it a "not at any price" deal. I know that you need more info to say "I'd do it" but my question is: are certain areas a hard "no" for you ... at ANY price?

Details:

Fiveplex - all 2/1

currently completely vacant

built in 1965

in a D area (currently bars over non-broken windows, others gone completely with just plywood)

I can buy for $20,000

needs $30k repairs/upgrades

can definitely immediately rent out, after repairs/updates, at $425/mo per unit

would be managed by local property mgmt co

Would the "D" area make this, or any deal, a hard no for you?

Thanks a lot for your input.

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y

Everyone above has made great points..

look at it this way .

you have a 425.00 rental what is the standard for putting a tenant in a rental  3X rent = gross income .. so tenant is qualified at 1200 a month .. to move in.. minus 425 leaves them 775.00 a month to live on less than 200 a week to pay for UTLS food transportation if any.. your simply getting in many instances the least stable folks in the US.. they have one little upset and they usually do what happens rent does not get paid.. there is a reason these properties trade at those values and rent at those numbers.. its simply not exponential in  a backwards fashion that 425.00 rents are great since they are so low if that makes any sense.

like @Jason Hirko  says if you have 100 of them and have all in house management and turn over services you can make a run at it.. I have clients that I have funded for going on 2 decades that own hundreds of these.. but even then.. they bottom out at 650 to 700 rents.. and many in your great state.. that leaves their rental criteria at 1800 to 2100 a month gross income to rent from them leaving them 250 a week to live on .. which is just about doable..

Just think about it for your self how would you manage at 175 a week total to cover all your living expenses.. I really think if you put it in that perspective you begin to see that higher quality properties are more sustainable.  Also Chris Clothier was the one who opened my eyes to this one years ago.. and of course my vendors over the years.

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  • Cody L.
    Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
    9y
    I've bought properties like this. The difficulties in management cant be understated. If you can find people to manage effectively then you can make a killing on this stock of property.
    3Reply
  • Steve B.
    Engineer · Portland, OR · Member since 2014 · 1k+ posts · 1k+ votes
    9y
    The problem with such a low rental point is that even if your expected fixed costs show it as profitable, it takes just a little swing in variable expenses to make this a consistent money loser. Unless you have some proven, automated system in place to deal with this class of renter at this low monthly rent I would stay away even if the property was free.
    2Reply
  • Adam Bradley
    OP
    Gardendale, AL · Member since 2017 · 47 posts · 18 votes
    9y

    Cody and Steve, great input, thank you very much!

    Steve, forgive me, but does "low rental point" refer to the monthly rent of $425? If so, then I think you mean that "the type of folks who will only pay $425/mo for rent will likely damage your property". If this is what you mean then at what rental point does this danger, in your experience, disappear?

    If that is not what you mean by "low rental point" then please elaborate.

    Thanks for the great input.

    0Reply
  • Steve B.
    Engineer · Portland, OR · Member since 2014 · 1k+ posts · 1k+ votes
    9y

    I'm not doing multi-unit but my experience is for SFR's is that if I pay 70k for $800 of rent I'll see about the same margins as paying 100k for $1000 of rent. Holding the tenant class constant, a lower rent property Have a higher cost of rent to expenses making the returns non-linear. I'm sure other investors have a better definition of this issue.

    But the bottom line is what @Cody L. Just said.  These tripe of properties are only suitable to, for lack of a better term, slum-lording.  If done that way, they can be very profitable in bulk.  The problem with Slum-lording is that it is labor intensive and I'm too lazy.  There certainly is a need for good, diligent slum-lords

    2Reply
  • Chris Tracy
    Specialist · Plainville, CT · Member since 2015 · 478 posts · 389 votes
    9y

    "D" area is a deal breaker sir.

    2Reply
  • Account Closed
    Investor · Princeton, TX · Member since 2014 · 1k+ posts · 1k+ votes
    9y

    @Adam Bradley  No. No. No. No.   The deal breaker was when you said you could rent it for $425.  If you said you were going to buy it and do a major remodel and invest $50,000, and get $850 a month then it would be worth it.

    2Reply
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    9y

    @Adam Bradley, given that it's vacant and boarded up, my guess is that it'd take much MORE than a $30k rehab to get it going again. But if you can get a 5-plex up and running for just $50k which will gross $2,125 per month, then I agree with Cody rather than Michael (unless Michael didn't factor that the $425 would be multiplied by 5, every month). My 2c...

    2Reply
  • Jeffery Waicak
    Investor · Massillon, OH · Member since 2015 · 266 posts · 156 votes
    9y

    if your numbers are accurate, It would be a hard yes for me. That's great roi.  And all in for 50k, once stable would have a good bit of equity. 

      This isn't a deal for a first timer unless they have a good management company in place. 

    1Reply
  • Matt W.
    Rental Property Investor · Los Angeles, CA · Member since 2016 · 57 posts · 34 votes
    9y
    After knowing what my experience has been in run down areas, I personally would pass. I've run or overseen tougher properties locally, out of state, and in Puerto Rico and I wish I had all of that time back to work on deals that could generate more income on less time invested with less headaches and stress.
    1Reply
  • Jason Hirko
    Lender · San Antonio, TX · Member since 2016 · 1k+ posts · 1k+ votes
    9y

    @Adam Bradley I would ABSOLUTELY buy this if it was in one of my markets. But here's the thing - a property manager isn't going to deal with this like it needs to be dealt with, because it is a freaking headache. Figure you pay them 8% of your $2,000 a month - would you manage this place for $160? In order to make these properties worth it, you need to scale so you can hire a full time bulldog of a manager who will chase your rent and a maintenance guy. In my experience you need to get to 100 doors for it to really pencil out. But then when it does, it is excellent

    2Reply
  • Andrew Johnson
    Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
    9y
    Adam Bradley There are plenty of "not at any price" areas for me. My guess is that tenants who occupy those type of units won't have easy ways to get the rent to you. You (or your property manager) will be driving by at weird hours to pick up cash, posting eviction notices, etc. Why? Again, it's a guess, but the way you're describing the property is that it's a "apartment if last resort". If you rent a place with boarded up windows, let's face it, you probably don't qualify for an apartment without plywood for windows. Since you only get the least qualified tenants you can throw "rigorous tenant screening" out of the window. I'm not saying to can't make money operating a property like this but you'd better know what you're getting into.
    2Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    Everyone above has made great points..

    look at it this way .

    you have a 425.00 rental what is the standard for putting a tenant in a rental  3X rent = gross income .. so tenant is qualified at 1200 a month .. to move in.. minus 425 leaves them 775.00 a month to live on less than 200 a week to pay for UTLS food transportation if any.. your simply getting in many instances the least stable folks in the US.. they have one little upset and they usually do what happens rent does not get paid.. there is a reason these properties trade at those values and rent at those numbers.. its simply not exponential in  a backwards fashion that 425.00 rents are great since they are so low if that makes any sense.

    like @Jason Hirko  says if you have 100 of them and have all in house management and turn over services you can make a run at it.. I have clients that I have funded for going on 2 decades that own hundreds of these.. but even then.. they bottom out at 650 to 700 rents.. and many in your great state.. that leaves their rental criteria at 1800 to 2100 a month gross income to rent from them leaving them 250 a week to live on .. which is just about doable..

    Just think about it for your self how would you manage at 175 a week total to cover all your living expenses.. I really think if you put it in that perspective you begin to see that higher quality properties are more sustainable.  Also Chris Clothier was the one who opened my eyes to this one years ago.. and of course my vendors over the years.

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    4Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    9y

    I definitely have areas and rent rates I won't touch.  D class and rents at $425 check both.

    But it doesn't mean I don't know somebody who will touch it.

    With off-market deals that help a seller, I'll wholesale or wholetail it.  Wholetail with plexes usually means getting a turd or 2 out and a haircut on those units.  Great returns.

    I know 3 green & hungry LLs  that buy for cash-flow and don't care about the other stuff.  Know some in your market! 

    If it's sitting on the MLS wilting on the vine, there's probably a reason and not much opportunity to assign it off, so I'd pass.

    0Reply
  • Adam Bradley
    OP
    Gardendale, AL · Member since 2017 · 47 posts · 18 votes
    9y

    For more context, this was a response to direct mail marketing. The seller is out of state.

    I did say that I could definitely get rent of $425, however I am being conservative. Literally, 100' away is a 10-year-old 100+ unit complex of 2/1's that rent for $585/mo and are booked full a year out (I called and asked questions like an interested renter.

    Steve Vaughan, I'm a noobie but I think I understand "a turd and a haircut" to mean "not much money". Right?

    Also, forgive me but what does LL stand for?

    Thanks for all of the input folks!

    0Reply
  • David Faulkner
    Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
    9y

    Would I do it? NO. Do I think you are likely to make much money on this deal? NO. Will you get a much better investor education with $50k on this deal then you would spending $50k on a guru training program? YES. And in the end you could probably sell it for not too much of a haircut from what you have in it so long as you don't go crazy with the purchase price or rehabs, so you are not likely to get wiped out on the full $50k ... so, I could think of worst things to do with your money, but it is not likely to be a good investment like you think it will be (ROI), but still could be a good investment in your education.

    0Reply
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