112 Unit Abandon Apartment Complex. Deal or Disaster?

Question

Hello Bigger Pockets Fam,

I am in need of HELP! I put a 112 unit (abandon) apartment complex on 9 acres under contract with the idea of rehabbing it, but after meeting with the Mayor and the City manager, I don't think the property is a good fit for my investment team.

Did I mention the property is 1 block from a College campus? Haaha the City manager described it to me as a GOLDMINE but my investment team doesn't have the money to pull off what needs to be done. 😞 Even if we did have the money, I have only rehabbed 1 house ever so I may have bitten off more than I can chew. Haha

Here are some notes on the property.

The current owner hasn't paid the taxes in years and currently owes $80,000 in back taxes and $70k in other debt.

The City has a deomlition order on the property but can not afford to demo it.

The City has not forclosed on it because they don't want it to go to auction or worse, be purchased by the college who doesn't pay taxes.

There is a theory that is has asbestos (information from the city who wants to knock it down).

Any advice would be much appreciated! At this point, I am considering selling the contract, but honestly I have never done that before and don't know the first thing. I wholeheartedly believe this property is a home run but I don't know what to do. All I know is if I back out of the contract I am missing out on an amazing opportunity. I just can't figure out what that opportunity is....

What should I do?!?!?!?!

PS: You can see the College Football stadium from the property.

Please help! @Brandon Turner @David Greene @Mindy Jensen @Scott Trench

Sincerely,

Spencer Scott

Spencer Scott · Answer

Quick update for anyone who is interested.

I spoke with a Real Estate Analyst for the college and they are interested, which is great news!!! They are currently reviewing the property and should have more information for me early next week.

Also, I sent the deal over to a local Real Estate investor who has been on the Bigger Pockets podcast and he is interested as well. He is looking into putting a team together to work with the city and rehab the property. Which is great because I would get to take a back seat on what it takes to rehab and own 112 units.

This has been an amazing learning experience and everyone I have spoken with (including this forum) has been great!

Even the Guru/Mentor/Coach(s) (Plural) who have called me after reading my post telling me "a deal like this could change the trajectory of my career" and "do I have the right people in my corner coaching me to success?" 😂 People are funny. I guess I can't hate on someone chasing an opportunity.

Anyways, I'll try to keep everyone updated as this deal progresses. There are soooooo many variables I will be super surprised if I can pull anything off.

Cheers,

Spencer Scott

Calvin Thomas · Answer

Investing 101. Do not go into a rehab property without knowing what needs to be done as well as excess capital for the unknown. We recently did something similar. Took over a building for basically taxes owed. We had to replace basically everything but the shell. It also had mold and asbestos which we need to remediate.  You need to have an inspection done on everything needing to be done to the building as well as estimates for the costs on these items. Then, you need to also expect to have a 20% cushion on all these repairs and renovations. You also need to have a lawyer put into contract with the city that you'd have first right to make good and repair the issues needing to be addressed.  In addition, did you negotiate with the State or city in terms of tax abatements? Rest assured, once you do rehab your property, they will re-rate the tax basis for said property.  Are there any grants in the State of Texas, County or city where the property is located? Are there any federal programs you can tap in to?  These are all important questions to ask and find answers to prior to going into contract.

Bjorn Ahlblad · Answer

In addition to what @Nik Moushon suggested It would not hurt to see if the city would be willing to forgive some of the outstanding taxes.

Universities typically look for investment vehicles to provide income and spread their endowment money over time. You can't ignore the possibility of having them as a potential investor/lender. Someone needs to exploit that avenue-so what if you get a 'no'.

Nik Moushon · Answer

Who said you have to do the whole thing at once, just do it in phases? It looks like there are several buildings. So you can focus your efforts on one or two at a time. This will cut down on costs and the over whelmingness of such a huge project. Plus you can rent the first ones done while you finish the rest. You will have to tidy up the outside of the ones not being reno'd so they don't look run down but you don't need to do work to them. The most important thing is getting inspections done ASAP. Have inspector look for typical inspector stuff but also bring in a structural engineer/architect or maybe even just a contractor to look over the building for structural failures. If the structure is fine then the rest shouldn't be that big an issue. As for the city it sounds like they want someone to bring this thing back to life rather than a tare down or an auction. So thats a good thing for you. I think they would be willing to work with you if you really show the effort that you want to fix this thing back up. I wouldn't worry about them forcing you to tare down. Ask them to lift the demo order once you get it inspected and assess if its still worth your time.

Chihiro Kurokawa · Answer

@Spencer Scott I'd like to learn more.

Jay Hinrichs · Answer

unless the shell is un usable I have to think someone would take a run at that at 2500 a door..

Jerel Ehlert · Answer

You need a political animal to deal with this problem.  It's not the property, or rehab, or money - it is the political machine.  It is better to get the Mayor on board.  If that happens, your deal has more value.  btw, it looks more like a motel, so that might be an option over low rise apartments.

Todd Dexheimer · Answer

There are a ton of investors that would partner with you. Reach out to companies and figure out how to partner with the right people.

Kenny Ramsey · Answer

I could be wrong here but the taxes & money owed here should be up for negotiation if the next step is tear down which is going to cost them money. I would think anything they could get would be a win.

Have you gotten a GC to walk it and give you an estimate on a total rehab?

Spencer Scott · Answer

@Kenny Ramsey I pray for jewish lightening every day!! Haha

I think we have a better chance at having a cooking meth related fire.

The City Manager has pooped on my concept of having the taxes waived. After speaking with multiple people it sounds like having the taxes waived is near impossible since Taxes are handeled by the county. On top of that, I was informed that if I did wanna persue the taxes being waived I would have to reach out to all the parties who collect on the taxes and have them approve individually.

If someone knows more about that, I would love to hear it.

I do not have an estimate on the total rehab, but 2 parties have taken a poke at it and expect it to be above 2 million.

112 Unit Abandon Apartment Complex. Deal or Disaster?

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