Investor · New Orleans, LA · Member since 2013 · 108 posts · 30 votes
Nervous about jumping on a good opportunity to purchase a 40 unit deal in a lower income area. The economics of this city is based off of fishing/oil and gas. Seems to me that systematizing a lower income area will be harder. This place is a little over an hour from where I live so ill be using property management. Any thoughts, experiences and anything else you know about running a smaller apartment complex would be helpful.
Its a small city in southwest LA of about 35k residents. The place only has 14 of the 40 units rented at this time but the lady is 80 years old and leaves it up to her daughter to run. I looked up rentals on the same street and called a few owners. One owner has 26 units and is 100% occupied. She says she never has an issue renting as long as you stay under $800. The unit mix is all 2bd 1.5bth with all of the same layouts. Its basically 10 4 plex's. I have spoke with numerous property management companies and plan to meet up with a few when I get construction quotes. Place will need about 250-300k worth of work but owner is willing to do 50k down 6.5% int with a 25yr AM.
@Jared Carpenter $700-750 with tenants carrying utilities for this particular area. There is a few smaller complexes ( 26 units and below ) on this same street that are 100% rented. The owner made out terms of $50k down @ 1.25m over 25yr AM. The area has little job growth since the oil bust in 13 but is slowing coming back up here recently. Again the place will need around 250K worth of work.
@Shane Jeanfreau Have you done the underwriting for this property? Is it going to cash flow once you have more units rented? How many units need to be rented at a minimum to have it cash flow?
Meet with the property management companies that work in the area and ask them about evictions. Not sure if you have such thing as rent controls, but if you do, check this town for rent controls. Also, write an extension to the lease specifically stating what the tenants are responsible for and what are you/the landlord responsible for. Make sure the property management company you hire has experience working this type of neighborhood.
@Alina Trigub I need 20 units rented for it to turn a small profit. It is not a rent controlled area which is good. Like you said the hard part will be to find a property manger to manage this type of asset. I manage my other small 4 plex and duplex properties but having a full time job also would make this impossible to manage. Do you self manage or hire out for your small complexes?
@Shane Jeanfreau If you only need 20 units rented to turn it into a small profit, that may not be so hard. However, I'm assuming this entails you managing the property and you'd need a few more units rented to cover the property management costs.
In terms of hiring property management company, we started with 3rd party but then one of my partners ended up taking it over from them since the property management company wasn't doing a very good job. I agree with you it may be a hard call to find a reliable property management, but you still have to give it a try. Call all local property management companies, ask other landlords, look up the reviews for the surrounding buildings online. And maybe you'll find a decent one.
@Shane Jeanfreau : Back of the napkin calculation says you have a winner based solely on the numbers. This is quite a coincidence but I recently entered into a strikingly similar deal. As @Hadar Orkibi mentioned, nothing wrong with the blue-collar demographic.
PM me if you'd be interested in further details and I would be happy to share the thought process on my end.
Congrats on finding what sounds like a great deal!
@Shane Jeanfreau Just curious, how did you find the deal? Based on the information you provided, it seems to be a pretty good deal! From a recent podcast I learned that you also want these apartments to be affordable (i.e. rent should be less than 1/3 of potential renters' gross income). Secondly, how did you come up with the renovation cost?
@Stephen Kunen This deal is listed on the MLS. I got a showing right away and realized with the occupancy at 35% and deferred maintenance there is noway I could get bank or agency financing. I brought up owner financing till the property is 90-100% occupied and owner agreed. I am still my 35 day DD so Im currently getting construction quotes. Not all units need rehab but some need updating. The 250-300k Was my ballpark estimate being conservative. I should be getting construction quotes back this week.
@Stephen Kunen This deal is listed on the MLS. I got a showing right away and realized with the occupancy at 35% and deferred maintenance there is noway I could get bank or agency financing. I brought up owner financing till the property is 90-100% occupied and owner agreed. I am still my 35 day DD so Im currently getting construction quotes. Not all units need rehab but some need updating. The 250-300k Was my ballpark estimate being conservative. I should be getting construction quotes back this week.