I've run across a couple properties and would love some input, thoughts, etc on how to possibly structure a deal. I've got my own thoughts but would love some others. The seller is a father of a friend of mine who is 83 and just doesn't have the health to deal with them any longer. He is willing to do some seller financing.
They were both built around 1890 so they are quite old. The neighborhood is what I would call lower class B (I think?). The area is safe (two blocks from the main police station and county courthouse) but attracts some of the not-so-great crowd. I've driven past the homes and they are in decent repair and believe that he has taken good care of the homes.
The renters he has in there currently are all from a local charitable organization. The organization pays the first 6 months of rent and then after that the tenants have full responsibility. Obviously he has lots of turnover because then they pay very late or don't pay at all. I could definitely find better tenants.
The homes are both separately metered for electric and gas but not for water/sewer.
HOUSE #1 (Duplex) - Asking $50,000
2bed - Rents for $400
1bed - Rents for $350
Insurance would be roughly $60, taxes are $48, trash $20, and water/sewer $90 (all monthly costs)
HOUSE #2 (Triplex) - Asking $50,000
2bed - $400
1bed - $350
1bed Efficiency - Lets his maintenance man of 5 years stay rent free. I'd say I could at least get $150-200. Owner wants him to continue to stay for free but I don't I can let that happen nor do I need that, have my own crews.
Insurance would be roughly $65, taxes are $42, trash $20, and water/sewer $135 (all monthly costs)
This one has a newer roof and I believe some siding.
What kind of a percentage is running the numbers should I use for Capital Expenses?
What issues can I expect with homes that are of this age?
What am I missing?
have you tried running your numbers to get your CAP rate ; cash on cash ; etc through the spreadsheets under the analyze and resources tab on the top right of the bigger pockets page ?
@Aaron Wyssmann ... my brotha!
Hmm. Well, the rent numbers seem in the range of more like a c- kind of property. At the prices of the properties they (to me) would be in maybe just ok ... needing help ... shape. I'd also make sure you have a clear understanding of any deposits, and the rent rolls for a few years. I'd also go through and make sure any deferred maintenance is a part of the negotiation/whether it be in the form of cash at closing to fix them (my choice) or a change in sales price. For me, i'd rather just deal with it and have it paid for in the deal if they are seller financing.
Now, you might be able to find better renters, and I would DEFINITELY either work a very different deal with that company, as in a guarantee of say 12-18 months and a deposit on the unit since most likely they are trashing them if there is that much turn over, or really rebrand the whole place, make it nicer, and bump up rents, and start over.
As far as the maintenance guy ... if he really does a good job, to me there is a lot of option here. But it might also be the old guard needing to go. But if he really is capable, you might be able to start using him on basic maintenance on other things, and build that into his "free rent" and expanding job description. A person like that at 15-20 bucks an hour, you might very well start getting your moneys worth if he feels a part of the new place, his place and all the others start getting nicer, and he does good work for you. Plus if he has been there that long, he is loyal, and I like that.
The numbers themselves, seem to work with just looking at them, nothing amazing, but certainly cash flow-able if the financing is reasonable.
@Westin Hudnall I have run them through the analyzers but the thing that has me a bit worried is the age of the homes. I put in 3% for CapEx but I'm not thinking that is enough.
how do your numbers look if you put in a "worst case scenario" number for cap ex?
3% is only $1500/yr for a $50,000 property. You may need to atleast double that
I think if you have to question a deal this much its best moving on --- there's always another deal to find just around the corner if you look hard enough
@Westin Hudnall I'm thinking you're right. I keep coming back to it and thinking about it but in my "gut" I just have some questions. To me that's saying move on.
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