I have been living in a small multifamily complex with 6 units. 1 quad and 1 duplex. It is a VERY old property and needs full rehab. I was considering getting the quad on a FHA 203k loan and getting an investor to help with the duplex. The property is in an Amazing location in a very fast developing area with a serious need for affordable rentals. I am paying $500 per month for a 2 bedroom. The next cheapest rental nearby is $975 for a studio. The current income from this property is $3000 with the potential to be $4500 and still be the cheapest by far nearby. Assuming it needs $125,000 in rehab and I could purchase the property for $150,000 it seems like a fool proof plan. Any thoughts or advise?
Don't assume on the rehab price, get a GC to come take a look at it if you are able to then with that number you can make an offer price. Check out what other properties which are up to date selling for, than can also help on the offer price. go for it and be the first in line for the offer.
So you'd have 275k in to it and be generating 3000-4500 per month? Sounds like you'd be doing better than the 1% rule and could potentially have a small down payment. Also, you would no longer be a renter. You know how the property is run since you live there and it sounds like it's in an appreciating location. If your landlord is retiring, he probably doesn't need the cash right away so perhaps, he might be willing to finance part of it too. If not, you can get the best terms from a conventional lender since you would be living there.
Sounds like it could be a great opportunity, definitely follow up on it. If his price is too high, you can always have him value each and then pick out the better deal. Good luck!
What kind of creative purchase ideas work best in this situation? My friend is in a similar position and has a great relationship with the landlord.
I know the place needs rewired, new plumbing, it has a cracked foundation etc. Basically a gut renovation. My aunt is a GC and I would get her to look at it beforehand. The way this area has been appreciating and is expected to continue is the main reason I'm so interested. I am going to bring it up the next time I pay rent and then based on that I will begin getting quotes and inspections. I will keep posting my progress. Thanks for all the input!
if the property is 6 units on one plot it won't qualify for a FHA loan. That would be in the commercial property territory and there are other requirements for they type of loan.
Caleb: Sounds like an interesting project. Given the repair needs on the building, I'd bet the renovations will be greater than $150k. A few things for you to keep in mind:
1) Check the zoning. Could this potentially be a development opportunity to raise the current structures and construct a new building with more units?
2) You mentioned the property is old ... could it be eligible for historic tax credits? Some banks will buy the credits from you, reducing your all-in costs.
3) If gutting, be sure to decommission any central utilities (boiler, etc) and separately meter the units. New utilities should be installed as to allow for costs to be passed to residents.
It sounds like there is a lot of upside here, which shows a lot of promise. Judging from the posts above, it looks like several others would agree.
One thing I would mention is that with investing there is no plan that is full-proof. Make sure you know where you are at risks, and do your due-diligence to control those risks.
It seems like you have already looked into the rental comps, which is great. That helps get an understanding of the upside. My suggestion would be to really pin down a good estimate for the renovation costs. This will be your highest source of risk for this type of strategy. The good news is that you can get good feasibility estimates for the rehab work.
Let us know how it goes. Seems like you are doing some cool stuff.
You could ask the owner if he's interested in financing the deal. He keeps his income stream without having to manage the property anymore, you get the property and can upgrade it.
If you can successfully upgrade one unit and the exterior and show the increased rent follows, it might be easier to get an investor to help with the others.
You can even house hack. Upgrade your unit, move into one of the others, and rent out your old one. That would further reduce your costs due to less vacancy.