Buying Underperforming Rental properties?

Question

Has anyone ever willingly purchased a Dog?

Were you able to turn it around?

I’m considering shooting for the business model of picking up underperforming properties from landlords/investors who have bigger and better things to worry about.

Often I hear about investors “cutting their losses”. Getting rid of their dogs to keep their capital moving.

My frame of thinking is, One man’s trash is another man’s treasure.

Do you feel like this is a dangerous field to get into? Am I asking for headaches?

I realize that I’d have to scrutinize each deal for potential value-add opportunities. But it sounds like a great way to market to investors who actually want the help. I could relieve their burdens. Win-Win?

Any thoughts on this approach?

Shiloh Lundahl · Answer

@John Alosio I think it depends on your experience level.  If you are new, I wouldn't suggest this strategy because what you are saying is that an experienced investor is not able to make his property perform but you think you can.  You will likely find out why it didn't perform after a period of time.  With more experience and familiarity with an area, you can take a property that is under performing and you can add value to it and get it to perform just fine.  My partner and I do this all of the time.  Right now we are in the process of buying a property for $112,500 that is in pretty bad shape.  We are going to make the coveted carport into a bedroom and take it from a 2/1 to a 3/1 which will also add about 200 square feet.  After putting into the property about 40k we should be able to bring the value of the property up to 210k and we would sell it on a lease option where we would get $3900 for the option and we would rent it to a new owner for about $1350.  We should be able to get the majority of our money back out of the deal when we go to refinance it.

This deal wouldn't work very good for most investors because it really is a dog property and it wouldn't cash flow as well just as a rental and it would have to be fixed up much nicer if they want to do it as a flip.  But it works just fine as a lease option.

Steve Morris · Answer

"Do you feel like this is a dangerous field to get into? Am I asking for headaches?"

I'd do it since that is the surest way to a good return.

Just need the seller to answer one question - "Why haven't you fixed the problems?"

John Alosio · Answer

@Shiloh Lundahl

Thank you for your input. I am relativelynew compared to a lot of folks. I've got two properties so far . I'm currently dealing with a unintentional pig that I bought recently, figuring out how to make it work with limited fundag. As I'm stewing about being slighted I thought "why not do this on purpose?"

Thanks for sharing your successful  "dog tale"