Would you do this deal?

7 Replies

I have the opportunity to pick up 5 single family homes in a mixed use are near a Local College.  The five properties have been neglected  as to cosmetics and have very little curb appeal. The rental area has a waiting list for renters and rents are increasing because of the usual supply demand dynamics.

I would take subject to existing loans at 4.5%  for the portfolio loan and a single loan at 5.%.

Immediate equity of 50k with a CAP rate of 10.07 and C/C of 96.07%. I need to cash out the broker.

Now the ugly- All need paint and clean up. These are older homes and all are the least expensive and most neglected in each of the respective neighborhood.

One house may need serious roof work- no leaks but missing roof tiles etc.

The monthly income is $3450 and the broker claims 28k NOI. That number is soft and my calculations are more on the order of 160/door per month.

Is this a gift horse or a problem waiting to happen?

There are too many unknown variables.

Property taxes, vacancy, insurance cost.

What utilities will the tenant be responsible for?

You didn't list a price for the properties.  

There is no way to even estimate without a price.

I would be very cautious with something that is very neglected.   To take on that many loans by yourself could potentially set yourself up for disaster.  I would be sure to get a thorough inspection done.  Especially for termites and foundation problems.  Both can cost you thousands more than you think.

If this were my first deal honestly I would either partner up with a more experienced person who can help mentor me through this or pass.  

Being that they are old (assuming at least 50 years +), vacant, and neglected, you will need more than paint and a few roof tiles.  That's a guarantee without even knowing anything more.  We are now talking about 5 houses, not just 1 too.  I'm willing to bet at least one of those houses is in deplorable condition.  This is a large undertaking for a first deal as stated above.  

Do you have a friend or relative that works on houses?  I'd have them check it out before you pay 300-500 for an inspection X 5!

Thanks good points- Properties are currently rented with long term leases in place.

Currently monthly $3450. The total price is $247,000. The houses are clustered with a couple miles of each other. I have my own contractor that does all of my property improvements.  I am planning to have a complete inspection and then decide.

I am not a fan of single family home rentals and have concentrated on duplexes, triplexes, and larger.

Interestingly my private money guru is pushing this as after a drive by I gave it a thumbs down.

I have owned 16 properties over the years as a matter of experience.  

The most important number is your renovation number which is missing.  The cost of the houses is $247,000 and if it cost $20,000 each for renoation the cost is  approx $350,000 plus closing costs.   As others have said we don't know who pays for the water and the heat and the garbage.  So if you factor in your renovations what does the deal look like?  Are you sure you can only buy this as a package?

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Originally posted by @Larry Strayhorn :

I have the opportunity to pick up 5 single family homes in a mixed use are near a Local College.  The five properties have been neglected  as to cosmetics and have very little curb appeal. The rental area has a waiting list for renters and rents are increasing because of the usual supply demand dynamics.

I would take subject to existing loans at 4.5%  for the portfolio loan and a single loan at 5.%.

Immediate equity of 50k with a CAP rate of 10.07 and C/C of 96.07%. I need to cash out the broker.

Now the ugly- All need paint and clean up. These are older homes and all are the least expensive and most neglected in each of the respective neighborhood.

One house may need serious roof work- no leaks but missing roof tiles etc.

The monthly income is $3450 and the broker claims 28k NOI. That number is soft and my calculations are more on the order of 160/door per month.

Is this a gift horse or a problem waiting to happen?

What's the ARV?

If each property was given a modest rehab, what are they ultimately worth?

Let me add that tenants pay all utilities.  I have someone working on comps right now as I have only viewed  the assessments and a few estimates from recent sales. Apparently this is area that the rental demand is so high that they stay rented with a waiting list. 

Current Market value is probably 320k. ARV assumes rehab and flip.

I am more of the mind of forced appreciation through pushing rent hikes to add another 275/month and hold.