Buy property A or property B

[Jerry W.]

Property A

There is a house for sale in town for $120K.  Built 1921.  It is 1900 sq ft with 1 and 3/4 baths.  It has a basement  but the concrete is in bad shape, it would cost $100K to fix it right.  I believe it is sound for having the house on it, but is bad shape none the less.  Has 3 bedrooms is very out dated with 1950s appliances and decor.  Large beautiful yard.  rent $700 to $750.

It also has 2 rental houses with it.  One is outdated, about 800 sq ft with a bedroom upstairs.  Would rent for maybe $400.

The second house was recently updated, central air/heat, 860 sq ft should rent for $500 maybe more.

Each house separately metered.

Taxes and insurance $160 month

$120K @5% for 15 years +950 per month

Property B 

Four plex in a neighboring town for $170K.  Built in 1970s, is 2 full stories high.  Has 3 units of about 850 sq ft with 2 bedroom 1 bath, and 1 unit of 1 bedroom, 1 bath with about 550 sq ft.  I estimate rent at $500 each for the 3 units, and $375 for smaller unit.  Laundry income of $150 per month.

Landlord pays water and gas, has boiler heat.  Need lawn care and snow removal.

Estimate water, gas, snow removal, and lawn care at $420 per month.

Taxes and insurance $220 per month.

$170K @ %5 for 15 years = $1350 per month

Property A pros

Is local can self manage.  One unit is modern, but all 3 can be rented as is.  Is much older will have more maintenance.  Has metal roof on main house.

Property B Pros

Much newer, all units are rented.  One roof, one heating system.  No need to update.

Property A Cons

Old buildings, smaller houses need roofs in 5 years, have T lock shingles, may need new roof to get insurance.  Smaller rental pool for lower end small house.  Potential of needing expensive fix someday.  Needs updating of units.

Property B Cons 

Thirty five  minute drive to other town, may need to hire manager.  Height of building means any work on roof is extremely expensive.

Please let me know your thoughts and why you would pick one or the other.  Maybe you would pick neither.  The 100% financing is by using a 2nd mortgage on a property with a lot of equity.  These are the best price to income ratios around.  I expect both to sale within 30 days or less.  property A just had a price reduction of $100K due to getting the estimate of repair for the basement.  

I would like to see these properties through the eyes of other investors.

[Chris Adams]

Hi Jerry

My quick thoughts are Prop A has 3 separate buildings so there are 3 roofs, 3 sets of mechanicals, and 3 exteriors to maintain compared to the 4 plex.

I think you have mentioned before its tough to find decent properties that cash flow in your area. Is a 35 minutes drive really to far for you to self manage? I guess that can be a tough drive in the winter for you.

When I plug the numbers you gave into a spreadsheet, Property A = $456/month - without PM or Repair reserves. With PM and reserves of $500/unit/yr its $259/month and runs a DSCR of 1.14. This would not meet my criteria, not to mention you have to invest 100k in the foundation

Prop B on the spreadsheet is even worse, showing a $66/month cash flow w PM and $500/unit/yr repair reserves.

If you would like a copy of the spreadsheet to see my numbers I could email them to you.