Acquire 6 properties for no money down: Having a hard time saying no, should I go for it?

Question

By luck or maybe not I received a call about acquiring 6 properties. I need no money down but I am responsible for the loan payment and back taxes. I normally do 1 SF rental at a time so this sort of deal I am having a hard time analyzing. This is all the information I have. I did speak to all but 2 tenants.

Loan: 42,000 @10% interest only payment of about 500.00 ballon due in 3 years

Back Taxes: $13,720.55

2 properties are on lease to own:

Property 1 for 35,000 $575.00 per month

Property 2 for 50,000 $675 per month

Property 3 is rented for $400 per month no lease

Property 4 is rented for $400 per month no lease

Property 5 is rented but not paying no lease

Property 6 is rented but not paying no lease

Property 3-6 are in D neighborhoods Property 1 and 2 are in C neighborhoods.

Issues/Consideration:

Properties will not appreciate if at all as they are in the city of Cleveland so realistically I do not want to plan for appreciation.

I will not manage these properties and will hire a property management company

I have 4 other rental properties

I really don't have an exit plan

42,000 is a blank lien on all properties. Which I think will make it almost impossible to sell individually (Company will release home for 7500 per house but lien will still show up. I just don't see an investor OK with that.

Here are expense numbers:

Taxes(Which I will go to county to lower values but this is where they are at now:

$793.04 taxes

$198 Insurance

$500 Loan

300 Management

A deal this big (for me) I just want to make sure I have a firm grasp as what I am getting into. The no money out of pocket is what is intriguing, I think.

Deal or no deal?

James Wise · Answer

One more reason to stay away from this deal. The guy has not even been paying his taxes. One would assume if the taxes are not even being paid the deferred maintenance is probably out of control. Sounds like a slum lord trying to dump his properties on you.

James Wise · Answer

No Deal

The P.M will be higher than $300, but even using your numbers with the 2 tenants not paying rent your only collecting $2,050.00 a month & your fixed expenses that you've shown is already $1,800. What about maintenance? H20 bill? The cost to get the non paying tenants out? The cost to get the non paying tenants apartments rent ready again? All of this to deal with how are you going to pay the back taxes and still have money to pay that balloon in 3 years?

John Ellis · Answer

Thanks everyone I agree I just didn't want to hear/read it. I appreciate the honest feedback and will move on to the next deal. I like flipping better right now but I was trying to add a few properties faster then I was planning too.

Pete T. · Answer

@James Wise hit the nail on the head w/ the largest red flag- previous owner not paying taxes in a rough area- he probably did the minimum or less for maintenance (could be a reason 2 people arent paying).  Those out of pocket cost could be extreme.

Jason Eyerly · Answer

'I really don't have an exit plan'... THAT says enough. No deal. Properties have too many issues and as any there poster recommended... Sounds like a dump.

Andrew O. · Answer

Wow, I didn't really bother getting my head around everything, but this really seems like such a big bother for little to negative returns, take what I say with a large grain of salt; just really seems like a headache waiting to happen.

Andrew

Wayne Brooks · Answer

Is the $42k loan just on houses 3-6 only, with a lease purchase price of $35/50k for 1 and 2?  If they "release" each house for $7500 pmt, the lien Won't show up for that property...that's the whole purpose of a partial release.  Agree that you have to be comfortable working in those neighborhoods.

John Chapman · Answer

Setting aside the numbers for a moment, do you currently manage D properties? If not, then this seems like big jump.  Are you sure you can even get management for the D properties or that it won't be exorbitant and eat up all your cash flow?   These look like real low dollar properties and I can't imagine why a property manager would take on the extra work, risk, and stress of managing them for only 10% of rents (which I'm just guessing is the typical fee based on your numbers).

Acquire 6 properties for no money down: Having a hard time saying no, should I go for it?

Most Popular Reply