12 Property Transaction

2 Replies

Investor Profile: Investor in Baltimore’s low income row homes. These home are traditional brick, 2-3 bed, 1 bath, 900-1000 sqft, built between 1950-1970, and rent between $900-$1100 / month. I focus on neighborhoods on the outskirts of the city that are less dangerous and strive for the 2% rule.

Financial Profile:

  • Software engineer day job
  • Near 800 credit
  • Primary residence
    • $230k loan, $60k equity
    • $1600 month mortgage
    • $1200 month roommate income
  • Single investment property
    • $950 month rental income
    • $250 month cash flow after mortgage and management fees
    • $30k loan, $60k equity
  • $100k Retirement account
  • $30k personal cash

Deal:

  • Investor seller (moving out of area)
  • 12 homes fitting my profile in single neighborhood
  • 100% occupancy, 75% section 8
  • each rent $1000-$1100 a month
  • asking $60k each, neighborhood retail is $40k-$70k depending on condition
  • Seller is introducing me to his portfolio lender
  • Seller is offering second lean to help qualify the loan

Concerns: I will be meeting with the seller and his lender on Monday. This meeting is to make sure I can qualify for a loan before proceeding to inspect the properties. Assuming that these homes have been maintained, I see many pros and cons to this deal and would love to receive advice / opinions from some more seasoned investors.

For me the financing would need to be enough to cover both loans, pay a manager, and still cashflow enough to build a vacancy/maintenance reserve. It would also require for me to not put down all of my cash and instead leverage equity.

Pros:

  • Turnkey properties, less risk in the beginning
  • Familiar lender and opportunity for creative financing
  • Large transaction - quickly and significantly increase my portfolio size

Cons:

  • Jumping from one investment property to 12 may be too risky
  • No forced equity

You are buying at 5 times yearly rent or less.  This is a pretty good deal.  You should be looking at a 10% cap rate or better.

The concerns I have are:

You only have 20% equity in your house.  That could be wiped out very quickly.  You do have $60,000 equity in your investment property.

You only have $30,000 in personal cash.  This is a minimal amount that you should keep available at all times.

You have little for a down payment.

At a 10% cap with cost of money at 5% or so this makes it a good deal.  If I was in your financial situation I would probably pass.

Good Luck.

Bill

Bill, thank you so much for the response. This is exactly the kind of direct advice I'm looking for.

Agreed. This deal would be risky for someone with my small financial profile. It's tough passing on a potentially profitable deal, but having others validate the risk helps me pass on the opportunity.

If I want to make something happen with this deal it sounds like I should look for a more experienced investor to partner with and bring the risk down to a manageable level.

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