Possibly too good to be true, help me see what I may be missing.

Real Estate Deal Analysis & Advice
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Possibly too good to be true, help me see what I may be missing.

Jonathan G.Pro Member
Investor · Tyler, TX · Member since 2014 · 96 posts · 22 votes

I just wanted to post a deal on here that I just recently came across.  I am new to Bigger Pockets and would like any advice at all when it comes to looking at this deal.  It seems to be way to good to be true.  I have run several different formula's as a first step (50%, 2%, 1%).  The next would be to pop all numbers in in the Rental Properties Calculator on BP.  Then I would probably go take a look at it.  It just shows so much cash-flow I am not sure why they are selling it for so low, and why it is not gone yet.

Before I do anything else I wanted to post the info on here for everyone and anyone to chime in.  Any help that you would offer in regards to looking closer at this deal I would much appreciate it.  If I forget to leave anything out in the initial post please feel free to ask me for any important information that I may be leaving out.

DEAL

12 Units with 1bedroom/1bath rent is listed at $450 per unit.  They say it is 100% occupied.  Asking price is $254,000.  It was originally listed over a year and half ago for $350,000.   Also they are offering owner financing.

It sounds too good to be true.  Any advice.  Should I go check it out.  Am I missing something huge?  Any advice would be very much welcomed.  Again I apologize if I have forgotten something.

Interior Features

  • Wall/window air cond.
  • Carpet
  • Tile flrs
  • Range and oven
  • Refrigerator

Exterior Features

  • Elect. srvc avail.
  • Public water supply
  • Public sewer srvc

Heating Features

  • Gas
  • Electric

Unit Features

  • 12 total unit(s)

Misc

  • Topography: Public sewer srv
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Jean BolgerPro Member
Aurora, CO · Member since 2012 · 2k+ posts · 1k+ votes
12y

It depends on the condition of the place really. My guess is that there's a ton of deferred maintenance. That doesn't mean it's not a good deal, you'd just need to know more specifically what you're getting into. I bought some 1-bd apartments for even less a door, but pretty much all of the cash flow will be going towards rehab and repair for quite some time. Once that is done it should be a really good money maker though.

At $450 rent (again, same as mine) you're dealing with a pretty management intensive tenant base. Make sure you use something like 13-15% for management when you run your figures. 

Do the tenants pay utilities, water?

In the lower rent price point it's possible to get a cheap price only to find that the expenses eat so much of the income that there's not enough meat on the bone at the end to make it worth the hassle. But if you can get your expenses in line it could be just fine.

Seller financing may mean a tired landlord, or someone who thought they could deal with that tenant base and were wrong. 

Go check it out! I'll be curious to hear more. Is it in Tyler? I played a concert there for the Community Concert Series folks a few years ago.

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  • Jonathan G.Pro Member
    OP
    Investor · Tyler, TX · Member since 2014 · 96 posts · 22 votes
    12y

    @Tom Keith , @Andrew Syrios , @George Smith , @Andy Argonaut , @Ned Carey , @Account Closed , @Joel Owens 

    Thank you all so very much, this is great info that I will read and re read over and over to analyze as well as put a successful deal together.  I really appreciate all the input and respect each and everyone of you!  Thank you for taking your time to answer questions from someone who is just starting.  It really means a lot that I can rely on people who have the expertise and  success in this industry when it comes to figuring out this new venture.  

    Thanks to @Joshua D. and his partner Brandon for developing such a great site.  

    2Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    12y

    @Jonathan G. 

      many have commented and all have given you some good advice.

    But this is an easy one... low rents = generally equal Intense management situations. If this was a deal or a nice Multi there would not be a seller looking to bail and finance it.

    the Multi sector is red hot for quality assets as has been posted.

    I suspect this is a semi ghetto slumlord situation with a ton of deferred maintenance and really tough tenant demographic

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  • Ram Srinivasan
    Business Consultant · Calgary, Alberta · Member since 2014 · 178 posts · 36 votes
    12y

    Yes it may be 100% occupied, but are the tenants paying on time? Is there an economic vacancy rather than a physical one? 

    100% percent occupancy could also mean that the rents are affordable and tenants are willing to pay. 

    My guess is strictly looking at the numbers is that this property is in a C area. A C area comes with its own challenges, and you should account for a higher management figure.

    In terms of a partnership split, it depends on your track record. Offer more to the investor in the beginning so that they would be happy with the returns even if you do have a bit of a hiccup in place. The other thing is to offer a preferred return - say 7% - where the investor gets paid at least 7% before you see a dime. Protect the investor and you will be much better off in the long run. 

    As an initial split - Offer 75% for the Investor and 25% as your "management fee" IF they are bringing all the capital requirements (purchase plus differed maintenance". 

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  • Jonathan G.Pro Member
    OP
    Investor · Tyler, TX · Member since 2014 · 96 posts · 22 votes
    12y

    @Ram Srinivasan  - thank you very much for your input as well.  That is a great way to start when I begin to work with the investors.  I agree totally that I should give them the main portion as a starting point and especially if this is my first dealings with them.  Then gradually change the percentage as we approach other deals.  Thank you!

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