Yes or NO?... Small Portfolio Buyout from tired Landlord- Rural area of MS.

[Michael Hoover]

Hello all,  

    A local landlord in my area has offered me an owner-financed portfolio and I am attempting to decide on moving forward with or running and would love your thoughts.  I currently own 18 single-family homes in the same area (1.9m value, Cash flow avg 320 per unit). I normally purchase very cheap homes, remodel, refinance and rent. (brrrr).   

           I personally know this landlord and have had sit-down conversations with him periodically over the last few years.  All properties are within a 2 mile radius in a tiny MS town. This town is very small in population (population trend not growing) although has a community college that is less than half mile walking distance from ANY of the properties (community college population is growing at WELL above avg rate(dorm rate 850mth)).    

     - Each of the apartments and homes have tenants currently.        

- The properties are in C to D condition with an occasional B- condition. A bit More maint expected than the BRRR homes I currently operate.

     - Current rent rates are roughly 200-250 cheaper than what this market could support "ONCE" homes had some love. 

17 doors,  Total mth Rent 9,600    (avg 564/mth)

Consists of: 

- 1 apartment - 8 door, built 1980, not beautiful but functional. Consists of 3 buildings each different style.   4400mth total rent produced.   400k ask

- 1 duplex, 1triplex type homes - 5 doors, really old home (1940ish) currently in C to D condition. 2600 total rent produced, 155k ask

- 2 Single family homes - 2 doors, really old home (1940ish) currently in C to D condition. 1800mth produced, 150k ask

- 2 Tiny home sheds- 2 doors, 800 total produced mth.  40k ask. 

There will be little to no detailed records of expenses as this is quite an old-school landlord that is not willing to dive into the nitty gritty. (maybe I should run) 

Owner has offered to finance the entire amount of 745k with 6.5% rate and 15 year term.  (i have not negotiated price any as of yet)

$6533 loan pymt mth. 

Taxes $667/mth

Insurance;  estimated at $1000mth, The Current owner owns and does not have insurance. (I will be getting quotes)

6533+667+1000= 8200/mth Prin,Int,Tax,Insurance

9600- 8200= 1400/mth cash flow.      17doors/ 1400= $82/door. (as is condition)

Across the portfolio I feel my crew can improve the properties and increase the portfolio output from 9600 to 12600/mth. For an expected improvement cost of 180,000. 13-month completion time across the 17 doors.  

Recapped-

PITI cashflow post remodels = 4400mth.

Money in deal 180,000 (renovation cost only)

Next step

- I feel I will likely refinance after renovation on the apartments to recapture at least my 180k reno cost for the portfolio. This will cost 1700 mth at 8.59 rate. 

This brings flow back down to 2700/mth with zero money in and 13 mths time. 

I'm still pretty undecided on the deal. I self-manage all my homes and the added workload from my current 18 SFH to adding 17 more "doors" could be substantial.

My current process (BRRR one home at a time) has a net $1400-1800/mth increase per year in cash flow, plus roughly 90k-120k sweat equity added per year.

 This deal should increase cash flow by 2700/mth over a 1 year time span and an increase in sweat equity by atleast 150k. 

 

****There are so many things to still consider, But please give any insight/ advice or potential ways to better structure this deal. or tell me I should RUN. Please give me your thoughts.*****

[Jay Hinrichs]

really depends if you want to double your work load.. I dont think you need advice for anyone how to structure this your already experienced operator.. the decisions is do you want to keep adding doors or concentrate on paying off what you have.