Would you buy three homes on one lot ?

Investor · CA · Member since 2019 · 17 posts · 10 votes

I have the opportunity to purchase THREE 2b/1bth homes that are on one lot in Fresno, CA for a purchase price of 215,000 which comes out to $104 per square foot. All three are currently rented out for a combined total of $2,150 a month so they would bring me $1,000 a month in positive cash flow. I walked through all three homes yesterday and they are livable but will need some tlc over the next few years and are in a lower-end neighborhood which is making me question the whole deal because I have no experience in this space. What would you do? any tips?

The few rentals I have are in the best parts of town and I have no headaches at all but I don't have any experience in a lower-ended neighborhood and don't know if it is the best thing to invest my money in. PLEASE HELP!!!

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

I would be talking to local PM's about the stability of the renter base in that area..

as for price and rent that's good numbers for west coast everything being equal.

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
6y
I would be talking to local PM's about the stability of the renter base in that area..
as for price and rent that's good numbers for west coast everything being equal.
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Bob PaxsonPro Member
Flipper/Rehabber · Philadelphia · Member since 2019 · 45 posts · 17 votes
6y
I agree with Jay definitely contact a couple property management companies in that area... they will have the information you need to make the right decision.
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Nathan GesnerBusiness Member
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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
6y
The more homes on lot, the better! The bigger issue is the quality of the community. it sounds like you need to do some more research before pulling the trigger.
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Sam Eknoian
OP
Investor · CA · Member since 2019 · 17 posts · 10 votes
6y
Thank you all for the advice! @Nathan Gesner @Bob Paxson @Jay Hinrichs
2 Reply
Robert Biggerstaff
Contractor · Pensacola, FL · Member since 2018 · 303 posts · 240 votes
6y
What is it you are looking for by investing? Answer that and decision will be clear
0 Reply
Sam Eknoian
OP
Investor · CA · Member since 2019 · 17 posts · 10 votes
6y
@Robert Biggerstaff I'm looking for deals that return 18-20% ROI as this deal would, however the last thing I want to do is pickup a headache. I don't have experience in the lower end part of town. I think talking to property managers is key like the other fellas said.
0 Reply
John Montgomery
Member since 2019 · 52 posts · 37 votes
6y
If the units are not all permitted and up to code, then you could be purchasing a huge liability. You could be held responsible for back property taxes on any square footage that hasn't been recorded, as well as sewer back charges for unpermitted bathrooms or kitchens. Don't know if that's the situation here but three houses on one lot seems a little suspicious. Just a couple things to keep in mind when you're doing your due diligence.
4 Reply
Sam Eknoian
OP
Investor · CA · Member since 2019 · 17 posts · 10 votes
6y
@John Montgomery thank you for your input! The lot is 0.31 acre which is far bigger than average in the area. But I would want to check all the permits as you suggested. Wouldn’t the home inspection tell me those answers or would I have to pull a report from the city?
0 Reply
Dennis M.
Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
6y
Look I would buy thirty homes on one lot if the numbers made sense . Absolutely I would , the more the merrier
1 Reply
Max T.
Investor · Philadelphia, PA · Member since 2015 · 3k+ posts · 3k+ votes
6y
@Sam Eknoian
It’s Cali
Buy it
The appreciation will happen
1 Reply
Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
6y
@Sam Eknoian I wouldn't have a problem buying them as it isn't much different than a triplex. Check that they are all legal. If you want a higher rate of return, you are going to take a higher risk which often means a lower quality neighbourhood. Talk to the neighbours or store owners in the area.
1 Reply
Johnny Keller
Member since 2019 · 2 posts · 2 votes
6y
@Sam Eknoian I own homes in lower class areas, as long as the tenants are properly vetted you shouldn't have a problem. Also, you don't find rent to value numbers like that in Cali anymore, I'd scoop that up.
1 Reply
Barbie Steele
Real Estate Agent · FRESNO, CA · Member since 2016 · 60 posts · 42 votes
6y
Fresno is a friendly ADU city, and with new laws going into effect January 1st, I wouldn't worry as much about the units not being permitted, as they now able to get permitted after the fact. Where the homes are located though is a primary concern. Fresno has a few areas where it just isn't worth it, unless you specialize in D class neighborhoods. Fortunately, there are many areas that have existing ADUs on the property that are in B and C areas, and since many people have yet to recognize the potential income from these properties, there are bargains to be had. I'd love to help you out in any way I can!
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Sam Eknoian
OP
Investor · CA · Member since 2019 · 17 posts · 10 votes
6y
@Johnny Keller thank you for you Insight Johnny. Your right those kind of number are hard to find in CA. This one seems like a winner I just need to do a little more due Diligence.
0 Reply
Sam Eknoian
OP
Investor · CA · Member since 2019 · 17 posts · 10 votes
6y
@Barbie Steele thank you for your response, I agree completely.
0 Reply
Nancy TranPro Member
Fresno, CA · Member since 2018 · 29 posts · 17 votes
6y
Depends on area. If you are talking about southeast fresno (east of 99 and south of 180), you can definitely find numbers like that, but it will take work and time. But the reward is cash flow.

We've had issues with our C-/D+ property like squatters, evictions, break-ins (we now have a security company come in twice a night), but the cash flow is about $200-300 per door, even after having to pay for all of this. You go to the local REIAs and the owners of these types of properties deal with drugs, gangs and property damage in these areas. It can be stressful, like getting the call from your property manager in the middle of the work day that someone broke into one of the vacancies, created a fake lease and now had to be evicted (this happened three weeks ago). Comparatively, we have B+ properties that have had zero issues, get virtually zero calls from tenants and PMs, but don't cash flow nearly as well.

So it depends on the location. If you are talking SE Fresno, or west of 99, it can be rough. If you are talking Tower or even just east of 41, which most would call C areas, you might be ok. As long as you know what you're getting yourself into, could be worth it. For us, we chose to narrow our locations away from these areas. As you've noted, it's hard to find deals in the good areas in Fresno unless you're willing to lose money on the front end and hope for appreciation.

Our agent, @Jeff Zimmerman, specializes in the multifamily Fresno real estate, and has helped guide us toward and away from properties since we began our journey, he would be probably good person to ask questions.
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Randall AlanPro Member
Investor · Lakeland, FL · Member since 2017 · 1k+ posts · 1k+ votes
6y
Be careful to check into your insurance considerations. I had issues with a duplex being on the same parcel as a single family home. Somehow insurance underwriting saw the duplex as an excessive liability to the SFH... even though there was a separate policy for the duplex. I think it is because liability is by parcel, and not by structure... but don't quote me... just get your insurance comps and make sure they run the nature of the property (3 SFH) by underwriting.
2 Reply
James Cox
Specialist · San Marcos, TX · Member since 2019 · 26 posts · 12 votes
6y
@Sam Eknoian I think a few others already mentioned to check zoning, otherwise you may be collecting checks only to find out you have to boot a few tenants or face fines. Also, probably a good idea to confirm highest and best use otherwise it may be hard to sell in the future.
1 Reply
Sam Eknoian
OP
Investor · CA · Member since 2019 · 17 posts · 10 votes
6y
@James Cox thank you!
0 Reply
Ron Jacobsen
Flipper/Rehabber · Raleigh, NC · Member since 2014 · 20 posts · 13 votes
6y
@Sam Eknoian - if they’re not all on city water and septic, you’ll want to know if they’re sharing a well or a septic system. This could be problematic if/when you ever wanted to sell any of them to a owner/resident. Also, is there a shared driveway? If you ever subdivide these properties, you’ll need to execute a shared driveway agreement between the parcels.
0 Reply
Stan Johnson
Rental Property Investor · NC · Member since 2019 · 17 posts · 10 votes
6y
@Sam Eknoian
I am from Fresno, CA and is familiar with most if the areas. What are the main cross streets? Which side of town is it on? I should be able to tell you if your on a decent sides but not as close to the terrible sides.
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Holly D. Metzger
Investor · Denver, CO · Member since 2017 · 19 posts · 13 votes
6y
That looks like a screaming good deal to me on the surface. But do as John Montgomery suggested and check the permit situation. If you find that they're not all permitted properly, and that it will cost you to do it right, perhaps a slightly lower offer is warranted?
So assuming that everything is copacetic and you can go ahead, take a look at the tlc's you mentioned. Are they serious (as in cracked foundations and bad roofs) or cosmetic (like new appliances and counter tops). Attend to the serious ones as you can without going hog-wild with rent increases. If they're cosmetic, resist resist resist the urge to over-improve. let the standard for the area be your guide. If the area is "lower end" as you say, forgo the temptation to do "high end" renovations. If the counter tops are Formica instead of granite, put in new Formica, it's the "new" part that is a sufficient upgrade. After all, as they say, you don't want to make a silk purse out of a sow's ear, when all your going to do is put it right back in the pile of sow's ears. Since you can't change the location of the property, you'd be doing just that if you over-improve the property. In the long run, your ROI will be much better.
1 Reply
Michael Ward
Real Estate Broker · Fayetteville, AR · Member since 2018 · 75 posts · 50 votes
6y
@Sam Eknoian Be sure to look into your financing options. I had a client/colleague who bought two small 2/1s on a single lot and couldn’t get a conventional mortgage. No issues with zoning or permitting at all, but it was an issue for lenders. I’d suggest discussing your options with your lender
1 Reply
Ola Dantis
Multifamily Syndicator · Houston, TX · Member since 2016 · 1k+ posts · 2k+ votes
6y
@Sam Eknoian
Hey Sam, I'm sensing you don't want a headache property, so one way to mitigate this is to get PM companies in the area and get a pulse for the area in which these properties you are located.
Remember, location location location! That is the name of the game. Yes, many investors buy in the bad neighbourhoods and do just great, but how many more investors bought and got burnt?
Perhaps, you could patiently keep buying where your other properties are in the good part and scale gradually instead of going with the outliers. Just my $0.02!
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Jennifer T.Pro Member
Investor · New Orleans, LA · Member since 2014 · 1k+ posts · 944 votes
6y
Originally posted by @Randall Alan:
Be careful to check into your insurance considerations. I had issues with a duplex being on the same parcel as a single family home. Somehow insurance underwriting saw the duplex as an excessive liability to the SFH... even though there was a separate policy for the duplex. I think it is because liability is by parcel, and not by structure... but don't quote me... just get your insurance comps and make sure they run the nature of the property (3 SFH) by underwriting.

Yep, this, though not quite the same problem. I put an offer in on 4 houses on the same lot. Three of them small duplexes (1bd/1ba each unit) and one SFH. It was crazy! But each unit did have a legal separate address. When I got quotes for the insurance policies...oh yes, they needed flood insurance too...because there were 4 individual buildings, it was going to have to be 8 separate policies. Four for property and four for flood. Which also meant that if catastrophe had happened and taken out all four buildings, that would have been four (or eight) deductibles to cover also.
My offer wasn't accepted anyway and I wasn't going any higher because of the substantial insurance cost. It was a real impediment.
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