Great deal; Schools/crime aren't great...

19 Replies

Hi all!!

First timer here, so bear with me if my math/logic is flawed. I found a condo/duplex, where each unit is for sale separately (2 bed, 1 bath, 800 sqft) in Charlotte, NC for $60,000 (each). I ran some numbers and am getting a cap rate of 9.34%, a cash on cash of 23.45%, and a ROI (w/o appreciation) of 30.34%. My cash flow is looking like $214 on one unit, so double that if I grab both. That includes P&I, tax, HOA, Maintenance, Prop Manager, AND all utilities, which I would transfer to the tenant. Oh and both units are currently occupied at $750/month per unit. They have had new AC units, refinished floors, new paint, new counters, and new tile in the baths. So it SEEMS like a great investment to me. My hesitation comes from the fact that the schools are pretty bad, and the crime rate is 25% higher than the rest of Charlotte. But I was thinking that these units aren't going to be attractive to families anyway, and they are pretty close to uptown Charlotte. Oh my strategy is to buy and hold, and get a decent cash flow every month, and hopefully sell for a profit in 20 years or so (think college fund). :)

So what would you do??? I don't want to mess this up! Thanks so much for your thoughts!

@Dawn Roof  

 it has been a while since I have been to Charlotte but I think it is a good place to invest. If the numbers work for you then I think you have a pretty good deal. Crime rates can fluctuate and there are ways to get increased police patrols in the area which may or may not affect the crime rate. Your concerns for schools is valid but you are in NC, so what do you expect? (I live in NC for about 20 yrs, and moved before my kids were school age) I would suggest that you do a little research on BP about buying tenant occupied properties though. Some things to consider is that you are inheriting those tenants. There are numerous posts about ways to deal with that and ensure a smooth transition. Good luck and keep us posted. 

@Dawn Roof  forgot to mention welcome to the site. This is a great place to learn and don't be afraid to make connections and ask plenty of questions.

Originally posted by @Paul S. :

@Dawn Roof 

 it has been a while since I have been to Charlotte but I think it is a good place to invest. If the numbers work for you then I think you have a pretty good deal. Crime rates can fluctuate and there are ways to get increased police patrols in the area which may or may not affect the crime rate. Your concerns for schools is valid but you are in NC, so what do you expect? (I live in NC for about 20 yrs, and moved before my kids were school age) I would suggest that you do a little research on BP about buying tenant occupied properties though. Some things to consider is that you are inheriting those tenants. There are numerous posts about ways to deal with that and ensure a smooth transition. Good luck and keep us posted. 

Thanks so much for the information! I'll definitely look into what to expect when buying tenant occupied properties. Here I thought that was a good thing because it means I don't have to go out and find someone! I didn't even consider the negatives that could bring with it. Thanks so much!

@Dawn Roof  it does seem easier to just buy something that already has renters but you never know what you might be getting. I have never bought anything with tenants in place but I think I would look more at rental history than if the units were tenant occupied or not. You might want to search BP for some key words like estoppel then go from there. 

@Dawn Roof  Welcome Aboard!

First, be careful of pitfalls on this one.  I looked at a place with very similar characteristics in Charlotte a few months ago, only to find out that the tenants stopped paying rent once the place was listed.  And the community (there were multiple duplexes) was about to mutiny against the powers that be - and I didn't want to be that power :)  Actually - it may have been the same place (built in 88?).

That said, I have three big questions:

  • Is 750 a reasonable rent?  That feels very very high for the type of place/area I'm picturing.
  • How is the street???  Charlotte has tiny little pockets of nice areas - and vice versa.  I would buy in a bad school district if I'm buying on a good street.
  • You listed a lot of systems that are in good shape - but what type of big expenses will you have in the next few years?  Get a little dirty to check it out - then hire an inspector later on.  

If you go through all of this and find yourself saying with good reasons why these concerns don't apply, then I think you may have a good deal.

Happy Hunting.

Welcome!

We are also buy and hold investors.  Honestly I have found we have done very well doing the complete opposite. We buy class A properties. The returns are 12-20% when you look at expenses. The key is our market allows us to keep "REALLY" tight margins. We self manage have no vacancy and very little expenses. They key with those units are making sure you get paid AND that they keep the houses up! I would  REALLY do your research. 

Another great place is to look around the blogs, forums and listen to the podcasts. If you see a post you enjoy check out the persons signature. Many of us including myself talk about our strategies, styles, niches and business model on our website. So definitely check that out as it is an amazing additional resource. For example, my blog is about while working full time, buy and hold investing, 0% Down Rentals, Personal Properties turned rentals, Long distancing investing, self-managing 3,000+ miles away. Definitely list your blog in your signature. Its a great additional networking source.

Look forward to seeing you around! Let me know if I can help!

If you are a community player, buy in and partner with law enforcement to make the neighborhood safer. It is amazing what a landlord can do to improve quality of life for residents and deter crime. I recently took a full day workshop on that very topic and was amazed by how much is possible from landscaping to tenant management.

@Dawn Roof  

Welcome aboard! I think the most important points have been made.

a) Is the rent sustainable and reasonable?

b) Do you know anything about the PM that is going to manage? If the area is so-so, than this might be the most important thing.

c) How do the prices (60k each) compare to other properties around?

Good luck on your venture and keep us posted what you deside to do :-)

@Dawn Roof the important points of the area, tenant in place and rent sustainability have been covered. Since you did not break out all of your numbers: Maintenance - make sure you are funding for both repairs and capex. With an HOA, you may not have building repair, roof, etc, but you will still have long term items like appliances, hot water heater, etc. On the topic of the HOA, how well is it managed? Is it well funded and do the rates appear sustainable? Have there been any assessments? Is the HOA adequately funded for community capex (building roof, siding, parking lots, etc) so that they don't have to assess the owners? Make sure you are funded for vacancy (estimate 10% of rent). Even with a tenant in place now, you will have a multi-month vacancy in the future. On your property manager estimate, you may incur a charge of 1/2 - 1 months rent when placing a new tenant, in addition to the 8-10% of the monthly collectible.

Welcome to BP.  You are in a great place to learn and connect.  On a side note, your photography is awesome!

Originally posted by @Jeremiah B. :

@Dawn Roof Welcome Aboard!

First, be careful of pitfalls on this one.  I looked at a place with very similar characteristics in Charlotte a few months ago, only to find out that the tenants stopped paying rent once the place was listed.  And the community (there were multiple duplexes) was about to mutiny against the powers that be - and I didn't want to be that power :)  Actually - it may have been the same place (built in 88?).

That said, I have three big questions:

  • Is 750 a reasonable rent?  That feels very very high for the type of place/area I'm picturing.
  • How is the street???  Charlotte has tiny little pockets of nice areas - and vice versa.  I would buy in a bad school district if I'm buying on a good street.
  • You listed a lot of systems that are in good shape - but what type of big expenses will you have in the next few years?  Get a little dirty to check it out - then hire an inspector later on.  

If you go through all of this and find yourself saying with good reasons why these concerns don't apply, then I think you may have a good deal.

Happy Hunting.

 @jeremiah B

Thanks for the input! This place was built in the 60's, as well as the others right around it, so hopefully it's NOT the place you were looking into! 

$750 seems reasonable. There are places around it ranging from $595-950 or so, depending on the number of bedrooms/baths, and updates and such.

I haven't yet driven by the property. I JUST found it last night, but I'm hoping to get out to see the area this afternoon. Hopefully I can get a better look at the roof than the photos show. Thanks for your input!!

Originally posted by @Marcia Maynard :

If you are a community player, buy in and partner with law enforcement to make the neighborhood safer. It is amazing what a landlord can do to improve quality of life for residents and deter crime. I recently took a full day workshop on that very topic and was amazed by how much is possible from landscaping to tenant management.

 @marcia maynard

Do you have a link you can share that would expand on this idea! I like what you are saying, and would love to positively impact the area if I could. Thanks!

Originally posted by @Sascha Weinberg :

@Dawn Roof 

Welcome aboard! I think the most important points have been made.

a) Is the rent sustainable and reasonable?

b) Do you know anything about the PM that is going to manage? If the area is so-so, than this might be the most important thing.

c) How do the prices (60k each) compare to other properties around?

Good luck on your venture and keep us posted what you deside to do :-)

 Hi @sascha Weinberg

Thanks! I'm loving the community and all the knowledge here at BP.com!

The rent does seem in line with other nearby units.

The PM i'm going to use was recommend to me by a very good real estate friend of mine. As it turns out the listing agent for these properties is the same guy I would use to be the property manager.

There is a similar 2 unit place 1 block over that is under contract for $55,000 each, so that lines up too. Thanks for you thoughts!

Originally posted by @Derek B. :

@Dawn Roof the important points of the area, tenant in place and rent sustainability have been covered. Since you did not break out all of your numbers: Maintenance - make sure you are funding for both repairs and capex. With an HOA, you may not have building repair, roof, etc, but you will still have long term items like appliances, hot water heater, etc. On the topic of the HOA, how well is it managed? Is it well funded and do the rates appear sustainable? Have there been any assessments? Is the HOA adequately funded for community capex (building roof, siding, parking lots, etc) so that they don't have to assess the owners? Make sure you are funded for vacancy (estimate 10% of rent). Even with a tenant in place now, you will have a multi-month vacancy in the future. On your property manager estimate, you may incur a charge of 1/2 - 1 months rent when placing a new tenant, in addition to the 8-10% of the monthly collectible.

Welcome to BP.  You are in a great place to learn and connect.  On a side note, your photography is awesome!

 @derek b

The HOA is minimal. One unit lists the HOA as $55/month, and the other as $35/month, so I don't think anything major is covered. Probably just the sidewalk or other common area upkeep. I don't know of any assessments, but I'll look into it. I did't allow 10% for vacancy, but I think I used 5% for maintenance. The PM rate is 8% of the total monthly rent, and yes, if they find the tenant, they take half of one months rent as a finding fee.

Thanks for looking at my photography!! It's a lot of fun! Hopefully that skill will come in handy on this real estate adventure too!

@Dawn Roof sometimes the HOA fees cover outside maintenance and insurance for the building (not what is inside) i would request a copy or look online for the HOA regs. I think they are supposed to be online but not sure. Reviewing those might give you an idea of what to expect if anything from the HOA.

Originally posted by @Derek B.:

Welcome to BP.  You are in a great place to learn and connect.  On a side note, your photography is awesome!

Ditto! I got side tracked for 30 minutes looking at your photography website!

Originally posted by @Dawn Roof :
Originally posted by @Marcia Maynard:

If you are a community player, buy in and partner with law enforcement to make the neighborhood safer. It is amazing what a landlord can do to improve quality of life for residents and deter crime. I recently took a full day workshop on that very topic and was amazed by how much is possible from landscaping to tenant management.

 @marcia maynard

Do you have a link you can share that would expand on this idea! I like what you are saying, and would love to positively impact the area if I could. Thanks!

Absolutely! There has been much research on Crime Prevention Through Environmental Design and the benefits of community working together!

From the U.S. Department of Justice: https://www.ncjrs.gov/pdffiles/crimepre.pdf

From the Bureau of Justice: https://www.bja.gov/evaluation/program-crime-preve...

From Wikipedia: http://en.wikipedia.org/wiki/Crime_prevention_thro...

From Bigger Pockets podcast with @Al Williamson (since he is big on making a difference in the community and works in inner city neighborhoods): http://www.biggerpockets.com/renewsblog/2013/03/07...

@Dawn Roof  

Please don't start from scratch. I want you to know there are plenty of best practices to help you sped neighborhood revitalization. Start off doing the things that have proven effective nearly everywhere in the US - then apply your unique spin.

It really isn't that hard.

My neighborhood is not considered troubled any longer. It's attracting a hip crowd with money and I'm able to get rents that exceed the once popular neighborhoods.

@Marcia Maynard

Will you please describe & explain what you meant by partnering with local law enforcement to make the area better. Very interested to hear how it work, thanks.

I saw you provide the answer above already. I was away from this message too long.

Dawn, welcome to BiggerPockets!  I miss shopping for new deals, I really do!

I personally would not buy a condo, but not sure if your market is primarily condo's.  Do you know how long the current tenants have been there?  Big difference between just placed and been there for years.

Our longest term tenant was inherited, it's not always bad.  Look for signs of the owner selling to get away form bad tenants.  

You've gotten some great advice.

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