Hi. My name is Ebony and I am new to real estate investing. I've made an offer on a few deals but was out bidded. Recently, I came across a property. The property is located 3 hours away from me. I am in Houston BTW. The property has 6 individual apartment homes on one lot. Each home is 476 Sq ft with a 15 sq porch. All homes are renting for $600 and that includes their utilities and they are all on month to month leases. Apparently, there is a waiting list to rent them. In addition to the 6 apartment homes, there are three empty lots being sold with it. This property is located in Corpus Christi. They were asking 180k. I offered 140k and they countered with 155k final offer, which I accepted.
Currently, I have the property under contract. They have given me a 30 day option period with 60 day close. Here is where my questions start. The property was owned by an older woman who recently passed away. It was heired to her grand child who does not want the property. The owner who passed kept very poor records. There are no rent rolls, no leases nothing! To make things more complex there are absolutely no other comps to compare it to in the area. So it would need a full appraisal to even see how much it is worth. I have not seen the property yet to estimate repairs as I have just placed it under contract and it is three hours away.
I have a few questions and need suggestions. All help is appreciated as this my first and apparently big deal.
What do you suggest I do during th 30 option period seeing that the property is 3 hours away?
Would a hard money lender or conventional leander be best for this deal? I have the 25% down payment but it would eat up my liquid capital.
How much do you think something like this is worth based on the numbers given?
Should I take out a loan just for the property and just continue to lease it out? If it has a lot of equity refinance and pull out cash for repairs and renovate the units as they become vacant?
Or should I take out a loan for the property and repairs upfront and try to renovate all of the units at the same time, which would require me to get the tenants to move and then raise the rent with new leases?
Last question. What should I do with the three empty lots that come with it? They are all adjacent to the property.
Hey there Ebony! I would love to chat with you if possible. My wife and I are local real estate agents and investors in the Corpus Christi area. You can see our FB page: Amanda&Edward Sanchez-Realtors/Investors
Given that driving 3 hours was too much for you to do before putting in your sight unseen offer, I don’t think this is the right property for you. The questions your asking should have been figured out prior to making the offer. You have no plan and admittedly will have no money after you buy the place. You should withdraw and make a game plan for yourself.
Did you even run numbers on the property to figure out net income?
You need to estimate your expenses as accurately as possible first. As part of that equation, you have to have a plan for financing otherwise, you won't know what cash flow you will be able to achieve, as that is a function of the interest rate and amortization period. I would assume at least $5k-$10k in repairs, even if the property is pristine, especially if you are inheriting tenants. Every time I've inherited tenants, I've had turnover. So for the short term, you need to keep enough funds to protect for any negative cash flow you may encounter up front.
For the loan, I would plan on talking to commercial loan departments at various banks since you have 6 units. They won't appraise with comps, but based on the rent and NOI. Verify you can qualify for a loan and what the ARV requirements, etc, are. Recently, my lender told me they would do a 5/1 ARM, 20yr am. with 80% LTV, assuming 8% cap rate in my area.
I would plan on driving down there, walking through every unit with the inspector. Then, if you are using a PM, take them with you to meet the tenants. This will quickly give you a rough gauge of expected turnover/problems you might inherit.
Thanks Ryan for the genuine reply. @ Dick I have a 30 day option period to do my due diligence to find out if this is the right deal for me. Then I have an additional 30 days to close. If I back out the most I loose is $200. I am looking for advice on what would be the best use of my time in these next 30 days. Keep in mind I am a new investor looking for guidance but I have a general idea of what I am going to do and have already been approved for financing.