I have an opportunity to buy a 3bed/1bath SFH estimated to be worth $70k for $50k in cash. The home is currently rented to one tenant who has lived in it for 35 years and pays $400/month. The tenant does not want to move, has a low income, can pay up to $500/month, and would plan to live there until they can't anymore.
The house is in good shape except for one of the basement walls that started to buckle. The owner put an anchor system in place to shore up the wall, that they claim is guaranteed for 23 more years.
Taxes are $1725/year and insurance is $800/year.
The owner will sell at $50k if the tenant can stay with rent increased to $500/month.
My questions are whether this would be a good deal, too much of a headache, other thoughts?
If you like the return on your cash, then it may be a good deal. It does seem like you will have a long term tenant but will be nearly impossible to raise his rent, so your investment would be for the long haul.
As far as the basement. The buckling typically occurs when water builds up hydrstatic pressure and pushes against the foundation. I am guessing it is block foundation and it is pushing out in the middle somewhere and you can see a crack in the mortar joints opening up. The specialty foundation companies typically want to put long rods in the walls with large underground stakes in the yard which pulls the wall back into place. Technically (in my opinion) this doesn't actually fix the problem which is the water, it just fixes the buckled wall. It is probably an ok fix, but I would confirm that the warranty fully transfers to you, and check out the company really well that is offering the warranty. Any warranty is only as good as who is giving it.
Good Luck! Aaron
I don't know where you live but I suspect the home is renting below market, even if you raised it to $500. Just consider the fact that you won't be able keep up with general inflation as long as this tenant stays. In other words, it may be a good deal at the start but it won't bring the best return over time. I think you should consider looking for something different.
Thanks for your replies!
It is a block foundation, and is currently renting for about half current market rates...
I’m debating buying, holding for a few years, then selling to gain the equity.
Take that 50k cash and go to a c or b neighborhood and find a fourplex. Use the 50 as a down payment and finance the rest on a $200k building.
If the rent is as low as this house at 500 a month that is a 2000 income amount. Your mortgage, taxes and insurance will run about 1,200. If you find a building that the tenants pay water then that is an 800 per month profit before maintenance.
And you can raise the rent here every couple of years and when you do its on four doors so your spread becomes healthy as the years go by.
Also, another positive is it will not collapse due to a basement wall caving in.
Thanks for all of the advice. I ended up passing on the property.