Should I buy this property?

Question

Looking at a home in a small college town located about 2 hours from where I currently live for a potential long term rental. Home is located very close to campus and is a 6 bedroom 2 bath home. My wife attended school in the small town and is familiar with the area so that helps me to feel more comfortable with understanding the area and neighborhoods. It is currently listed at $145,000 and per bed rent is anywhere from 400-450 per bedroom. There is a catch though, it needs about 100k in foundation work.... I have contacted the foundation company personally to get a better understanding of the scope of work and have looked at a couple of other bids (they were cheaper but were not going to resolve the issues long term). Ultimately, when I break the numbers down it all still seems to make sense. Even if I offer the seller 245,000 and have them complete the foundation work prior to closing, the property should still cash flow.. Any advice? Would you do this deal?

Ghassan Jabali · Answer

Hello Austin,

I hope you're doing well. It does sound like you have done your research on the property and that it is viable for the cash flow. However, when it comes to Foundational Work, you may want to consider not paying the Seller to make the repairs--unless it would affect the marketability of the title you are obtaining--but rather hire the contractors yourself to do the work. This has an advantage of it being done correctly and for the Seller not to cut corners.

Alternatively, if you are concerned about not wanting to engage with the contractors directly but have the Seller handle it, then you will want to ensure that the contract is written to include those repairs and that reviewing the renovations to ensure they are of quality work as part of the contingency to purchase the property is included.

Acquiring it can help increase your assets and allow you to have consistent tenants with college students.Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.

Jaycee Greene · Answer

Hey @Austin Moore, welcome to the BP Forum! It takes a special investor to buy a property with foundation issues. If you were to buy the property per your post, what would the debt service be for the DSCR loan?