Looking at low income rental portfolio

7 Replies

I am looking at buying an investors portfolio that contains around 40 units.   They are all single family homes that rent for around $500.00.  Its low income stuff and a 5 of them are section 8 housing.  The cap rate is is over 10%.  It meets the 1% rule from the outside looking in.  I am sure there will be repairs and maintenance as the homes were built in the late 50's and early 60's.   I own a few rentals now, but this would really stimulate my rentals and I would put in a admin and a maintenance guy.  With these 40 units it would give me around 60 total rentals.  Anyone have any advice?

@Dorothy Butala Thank you for responding.  Just looking for reassurance on the deal.  Its over a million dollars but the seller is willing to owner finance with decent terms in my opinion.  Does lower income scare you?  Any problem collecting rent?  Do you see any problem buying units that at 60+ years old.  The current owner has done a good job of maintaining them so I do think they are in good shape.  

@Jordan Maroules have you figure out how much maintenance or management will be required? Typically low income housing require a lot more management versus average priced rental units in the region. You should think about your vision for the portfolio too. If you would like some appreciation, low income areas don't appreciate as much as the average priced homes in the area. If the low income area is on the "rise", ask agents or investors who own in that neighborhood how long it's been waiting to appreciate. Good luck. 

typically if it is low income, i like to see atleast 2% rule applied. 1% usually doesnt cash flow for low income stuff.

At that rent level, those are homes you'd want to sell with owner financing. Be prepared to have plenty cash reserves, high turnover and high delinquency. It would help for you to take a look at his P&Ls to understood how the investor has operated the portfolio. Best of luck!

Besides the above already-given great advice, I would suggest that you not self-manage. I know you mentioned an "admin" and "maintenance guy" but if you have a PM, the maintenance guy is typically built into that service and will save you so many annoying calls. 

Great comments and I agree with them all especially the 2% rule and do not self manage!

Most importantly though, what is location like? Is it improving or declining?

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