After a flip from hell, two years and a lot of lessons learned I am considering getting into real estate after relocating.
My original investment strategy was to buy a duplex and house hack, but all the units I saw were trashed and not up to code. I mean every single property but one, and I spent 3 solid months of looking two or three times a week. Why do people let this happen to their rental properties? I saw units with families living in houses that were structurally unsound, electrically unsafe, etc. These people just sucked up rent and depreciation while leaving absolutely nothing but a death trap good for pawning off on a gullible investor, or demolishing. Add to that the terrible state of our local economy and it felt nearly impossible to get started. /end rant. Is this just a south jersey thing or is this everywhere? Did anyone else experience this getting started?
That being said, what areas are best to move to for multifamily investing? I know Dallas is growing fast, as is most of Texas. Also, I work in IT so there's no city where I would really have a hard time getting a job.
Thanks in advance and pardon my rant.
That sounds terrible :(. While I see random places that sound similar, especially in lower income areas, there are many many properties that are not dumps.
Perhaps up your price point and look in a B/C class neighboorhood?
If you are in IT the world is open to you and I vote for west coast, but it is spendy here!
One man's trash is another man's treasure. I love trashed houses like that. All those things you mentioned, plus give me some mold in there and a smell please! The worse the smell, the more I'm interested!
And no, that isn't just a south jersey thing. I've seen it everywhere from CA to CO to MD. Many landlords just try to squeeze every last dime out of a property and never re-invest in it. Once it gets to the point where they fear a lawsuit from unsafe conditions or no one wants to rent the place at all because it is in such bad shape, they just sell it to someone else to deal with the pain of getting the property back into proper operating order. I actually don't mind this at all but I enjoy the rehab process. Most people don't share my passion. haha.
I’d actually prefer places like you’re describing! These are great conditions to successfully low ball on price because of the money you’ll need to put into them to get to a desirable condition, and the owner knows this. Great cash flow opportunities if you do your math well and factor in an accurate rehab estimate for your offer.
When buying property I love the distressed properties. The nastier the better, but not structurally unsound.
I can build the value into it. Buy at a discount and rehab it to force the equity in it. I mostly buy for rentals but do a few flips a year. In order to make the effort worth your time the numbers have to work.
Your market depends on your strategy. I like C and B neighborhoods. I stay away from D. I like hard working neighborhoods where I can increase the value of the property and it allows me to select better quality tenants which in turn provides higher rents.
I agree with @Dennis M.
Opportunity comes in all forms. I can understand a landlord getting tired of the day to day dealing with tenants. It’s draining some days.
Everyone sells properties for a variety of reasons. If that develops into an opportunity for you, go for it.
You are helping them out of a situation they do not want to be in which becomes a new investment for you.
Keep your eyes and ears open.
whoa, thanks for all the replies in this thread. This definitely changes my perspective a bit. When i jump back into it I'll definitely look at these properties as great rehab and rent opportunities. I just need to find that good neighborhood, like you all pointed out.
@Anxhela Musta , absolutely! People run from fire damage, water damage, mold (although not as much as they used to), weird smells, former drug labs, and structural issues. There are only going to be a handful of professionals in any given city that are willing to take on these projects so the competition is next to none and you can pick up these properties at pennies on the dollar. BUT, you better have a strong team that knows how to deal with all these types of issues or you'll go broke trying to bring a property like that up to something marketable to retails/renters.
Some smart points here
You aren't going to fine "nice" small multifamily (duplex, triplex, fourplex) for sale anywhere in America for fire sale prices. The main reason is that those places can be legally financed by traditional residential means, not commercial loans. Investors have long since wised up and snapped up as many good, low-maintenance duplexes as they can find because they're good moneymakers. You're going to have to go higher up the tree for fruit.
As you indicated, you are going to find plenty of duplex crapholes with tons of deferred maintenance problems run by people you wouldn't want to break bread with.
Here's one scenario for how that happens. Imagine a duplex built maybe circa 1950, and a hardworking youngish guy with some DIY skills and smarts buys it as a good investment new, self-manages it and kept it up nicely for thirty-some years. Then he passed it on in the 80s to his useless kids with lots and lots of white-collar middle-class life expectations and some good strong affluenza deep in their bones. The kids couldn't care less about real estate as an investment. They predictably drive it into the ground with deferred maintenance issues and lousy tenants. They can't sell it as it is owned by multiple offspring with all sorts of opinions of what to do with it, but as the offspring started dying off and/or retiring to Florida or a nearby retirement home, the place tends to consolidate again under a single executor who takes care of it for their combined interests.
That owner/executor will often have a loathing for that property as a millstone around her/his neck, not worth the money it generates. When Section 8 refuses to certify the place as habitable any more, the owner's left in a complete bind. With luck, they'll jump at a cut-rate cash sale...these people love trying to hide cash from the IRS, it's like a social disease with them.
This is where you make real money with your offer and then with the rehab, if you're good at rehabbing.
The story of my first BRR duplex:
I bought a fixer-upper duplex from a wholesaler in a "double close" situation. He paid the seller $32K for it, plus paid the $2K shortfall in property taxes, and I bought it from him for $47K. I spent $28K in repairs and the ARV was (still is) about $115K. I'm currently renting it for $1895/month gross rent (total).
How did this duplex come into such disrepair? A couple reasons. The people who owned it died (not sure when) and their 4 adult children inherited it. The house flooded in Hurricane Katrina. The majority of the house was fixed back up within a couple years or so of the storm. But the repairs were never finished. I'm guessing, at that point, it would have only cost $5K-$10K to finish it up and rent it out. I suspect there were too many "cooks in the kitchen" and nobody wanted to cough up the rest of the repair money and time.
The duplex sat there for over TEN years, just languishing. Getting in worse condition with each passing year. No electricity or water on for one of the units. One of the adult children lived in the smaller unit all that time. No drywall on the main kitchen wall and no sink. The "floor" for the two bedrooms in that unit was the concrete pad. But it was free, so he apparently put up with the conditions. At some point, three of the kids signed over the house to one of them (not the one living there). My guess is because she was the only one willing to pay the property taxes. Until she wasn't anymore, didn't pay them for a couple years, and then sold the house to my wholesaler.
Structurally unsound! Haruph!
We had to immediately install 27 Lally columns in one multi-family.
I found wires spiced from a basement light, completely burned and melted going to an apartment! Yikes!
You want to get into the game in NJ and turn a nice profit- you gotta look for repositionable multi-families... it takes a little time, cash and elbow grease, but you’ll be laughing all the way to the bank.
Great stories, thank you for sharing. Sounds like a lot of opportunities to make money, I never knew about those different situations/avenues.
I'll have to get a good team together before I hop back in and be ready to really put the house through the ringer to make sure the numbers work. I'll be walking into houses with a different eye now.