Big investment - need opinions

20 Replies

I was notified that a couple in town are wanting to completely get out of the rental business because their construction company has taken off and they are too busy to deal with the rentals. They sent me a list of 16 of their homes, some of which are multi-family- so a total of 24 doors. They are all fully rented currently and she gave me what each rents for as well as the taxes and insurance on each. It totals up to $12,375/month in rent. Expenses per month $3,977.25 (taxes- $1,071, insurance - $1,050, 5% taken out for vacancies/repair/cap ex - $1,856.25). They are asking for a total of $509,500 for all houses but I know I could get it cheaper. My questions is - would this be too much to take on all at once for a newbie investor (I currently have 1 SFH and a 4 unit) and I know they have a lot of rentals that are section 8 approved which I have no experience in. I don't want to get myself into a huge headache and not be able to get out. What questions do I need to ask or what issues should I watch out for? Thanks for your help!

@Angela Doyle so you have 5 units and are looking at 24 additional ones, you are experienced. Do you have the finances? Are you good at underwriting? Can you inspect the properties? Who will PM? How far are you from these units? What do you think-can you handle it? I'd be careful of partners unless they have a specific strength you are missing. Partners in REI can get messy! All the best!

Of my 5 units, I only currently have the SFH rented out and that just happened last month. The 4 plex is still getting renovated so I'm still pretty new and the one couple I have renting have been VERY easy so I'm not sure what I'd be getting into if things get crazy with that many units and that many people. I live 45 minutes from the homes but I already work full time in the same town so I would be able to drive by them daily. I don't know of any good PM's in town but that would probably be very helpful if I could find someone to manage them for me.

In for a penny....

You will be overwhelmed for a little while but sounds like a great opportunity if you have the bandwith and reserves. You could sell off a few if you wanted to consolidate and if you buy right you could set yourself up for a solid portfolio or for having lots of equity in fewer properties. 

I'd look at seeing if you could get a loan that gives you partial collateral release without refinancing, then it is even easier.I wouldn't bring on a partner but I'd think about hiring someone by the hour to help you get set up, anyone from a handyman to a bookkeeper/organizer or both. Good luck!

Am I understanding this correctly?

They want to sell a portfolio of properties that is currently netting $100k/year, all for only $500k?

That sounds too good to be true to me, but maybe I'm just being too skeptical.

I hope it works out for you.

@Angela Doyle - only you can answer if it is too much too soon! But it will definitely overwhelm you at the outset. Those income numbers @Justin F. don't include any debt service - and the vacancies/repair/cap ex - $1,856.25 seems too low - but I don't know this area or the condition of the properties. My guess is they aren't close to new construction though are they Angela?

@Angela Doyle

If your goal is to grow your portfolio then why not?

I would get it cheap, get them to help w the financing, and ask them for some agreement where you get their help while you ramp up on them. If you have a job I would strongly suggest a PM and embed that cost into your underwriting

Holy cow!  Unless they need $500K in repairs, which isn’t likely if the are all rented and partially SEC 8, this is a smoking great deal. If you don’t take it you will regret it the rest of your life. I would guess they would be thrilled to advise you for a few years if you get stuck. Or there is plenty of cashflow here to hire a property manager while you are still working full time. If they give you short term owner financing you can probably do a refi with a local bank based on appraised value and end up with no money out of pocket.  I have purchased portfolios this way. If their real purpose of selling is time, not money, they may very well be willing to do this. It would even be worth it for you to pay a small amount more to sweeten the pot if you need to to get the short term financing. 

So excited for you. I would LOVE to get a deal like that in my area in today’s market!

I don't understand why somebody in the construction business whose business is taking off and they don't have time to manage their rental property, as long as it performs that well, why they don't just hire a property manager.

  I think there's more to the story and at best, it might be as simple as they just really need to raise capital or get rid of some debt.  

@Angela Doyle

Each unit/ house is around 31 grand and your getting like 775 rent on each one through section 8?? And you think you can get them to reduce that price down further ??. Seems like a pretty darn good deal I’d say especially if it’s not in the ghetto/ hood . I’d be very interested if it were me

As far as what your used to and if it will be a lot to take on .. yes you will need to drastically ramp up your skill set and yes it will be somewhat overwhelming initially and yes your going to get calls requests and drama times ten ...but you have a rare chance at a great opportunity here if you play your cards right this can set you up on a path to wealth pretty quick . Money can’t buy happiness but It’s so much easier to cry in a Lamborghini than an 82’ ford fairmont

$20k per door at $500 month rent in a good vs bad area can be two very different investments and management needs.  I don't have a low enough cost structure or the time to make money on $500 rentals but many others do.

@Jonathan R McLaughlin I will definitely look into hiring a handyman to pay by the hour especially for those emergency calls. I've never heard of a partial collateral release. Would you be able to explain that a little more?

@Jamie Rose I just used 5% for vacancies/cap ex/maintenance but I could definitely see it potentially being higher on some of them. They have put new roofs and done upkeep on them so I think they should be in decent condition but no they are not new construction. Most of these homes in Keokuk are over 100 years old!

@Sam B. I will look into hiring a property manager and add that into the costs as well! I think this couple might actually be willing to do owner financing for the right offer so I will try to go down that path first.

@Patti Robertson That is a great deal to do the refi with no money down. If you have more experience with this, I would love some tips!

@Dennis M. LOL! I like the way you think :) In Keokuk, there isn't really a great part of town and a ghetto, it is all kind of interspersed. 

@Sam B. that is great advice!

@Brian Phillips I will verify the rents collected but those taxes and insurance are correct for this area. I bumped up the amount I would hold back on vacancy/repairs/cap ex and the return is still very good.

@Patti Robertson I am planning on trying to get them to do owner financing but I'm not sure how to structure my offer to them. Is this something you would be able to help with?

If I am planning on buying all the homes would I be getting 1 mortgage as a lump sum or would I have to get a separate loan for each home?

My first question would be to know if you have a property manager. If you are self-managing I would stay away. If you have a manager, or if you would be open to hiring one, then I would say your best bet is to go for it if you can afford it. The numbers check out well enough and I would say you may even be able to go a little lower if they want to get out of the properties. Selling all the properties together would be a time saver for them. 

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