Mod Rehab Apt - Looking to purchase but need answers

2 Replies

Hey BP World-

I'm currently in negotiations on a 55 unit apt that is still on a renewable Moderate Rehabilitation Program contract. The current owner has renewed it annually and followed all the guidelines/red tape with the local PHA. However, when I reviewed the past several years' renewals they have had to use the current contract rate +OCAF (cost of living increase determined by HUD). Due to this, there is about a 15%+ variance from current rent to market rent (even market rent less utilities). I want to know, if I buy this building, is there a way to get them to re-baseline the rents to come into closer alignment with market? It's a low-income independent senior living apartment. I think there is a ton of opportunity here. I had heard that if you do significant updates/remodels that you can request a new baseline. . . but I can't find that in any HUD or local PHA documents. I would love to use BRRR on this and think it will be cash machine if I can get the rents up.

Let me know if you have any questions that I can answer to receive better advice. Thanks in advance BP! 

Hello Gordon!  I would ask the appraiser what he/she needs to raise the value.  If you are not satisfied with everything, you should just walk away.  If you don't get positive cash flow using current expenses just walk away.  Do not assume anything about the future.  Good luck to you!