Help me Analysis this deal!

10 Replies

My husband and I are in the greater Birmingham market. We found this property and are preparing to make an offer. The listing agent is sending us rent rolls and all other documents they have right now. We have asked the owners if they would owner finance and they said yes depending on the terms. What offer should I make them? What risk am I not seeing? Will this make my family money?

Property

54 Worthington Dr # 15, Woodstock, AL 35188 <-  Link to Redfin

4 2bed/1bath for 524 and 1bed/1bath for 485. 

Concerns

The 5plex property is located 20 minuets away from any shopping or dinning.  It is rural. there is a farms and national parks on the same road.  It seems to be the only rental property in the area.  I drove around and could not find a for rent sign.  Online I can't find any past rent postings for nearby homes on Craigslist, Hot Pads and others.  

2 units are vacant, We could move in to one if we wished.

"The" Numbers

Annual Gross Rent are 31020. Asking Price of 185000. Down payment 17500  

What should I offer?  Below are cost if I pay 185,000 for it.  I get about $105 per door.  My estimates are very high on expenses.  There are no comps.

Expenses

Monthly PITI payment $1078.28 This is derived from a 360 month term at 4.5% interest. Property Tax of $1348. Insurance of $1350 this is a blind estimate quote pending. Wells Fargo has per-approved us at 4.275% interest last month.

Maintenance 4000 annual. estimated as 2% +500,  I feel this is a high estimate. 

Vacancy rates are unknown in the area and are estimated at 8% annual for $2481.60

Property Management for the future, if we ever need it, is $2853.84 annual

Repairs and CapEx

The duplex has a new roof put on 7 years ago and looks good.  The triplex's roof is 31 years old and has been repaired over the years. Currently there are 4 10x10 feet areas that need roof patching.   the floors in 2 units need new carpet and paint now.  The HVAC are 2 tons for each unit and are less than 7 years old.   5 4x8 patches of dry wall need to replaced.   3 water heaters are less than 4 years old, 2 are about 8 years old. The stoves, fridge and dishwashers are all about 5 years old.  No pluming issues are seen.

Data is form a onsite inspection last week.  I report on damages on ROE to banks for a living.

Schools

The school scores 6/10 on GreatSchools.org compared to the lower scoring neighboring areas 2/10 and 4/10.

Update, It seems the crawl space under each building has no ventilation.  mold is set in under the house, but not in the wood floor yet.  The roof spots that need repaired have damaged the floors in some areas by water leaking in before it was patched. The sub floor has a few week spots.    I also learned the seller is elderly. He purchased it for his son.  Yet his son move away and did not want it any longer.   He seems motivated. 

How aggressive can I get in asking the seller to come off the price?

@Wilson Lee Welcome to BP! While MFRs aren't my personal area of expertise, I have to say my gut on this one is that you're trying to make it work when it doesn't. Especially now that you know there's a mold issue, likely needs a new roof, new flooring, and likely other deferred maintenance issues due to a neglectful landlord, it just sounds like this is going to be way more trouble than its worth. For the amount of money you're looking to put down (especially once you factor in these costly repairs) you could have a couple turnkey SFRs cash flowing without any hands-on from you.

Of course, you might like the hands-on aspect, so Turnkey might not be up your alley, but this property still seems like its a bit too much to bite off for your first go 'round. You've mentioned its rural, which isn't necessarily bad. However, while a lot of people in AL like living in rural areas they typically go the SF route (we have luck in areas like Pinson, Graysville, Trussville etc). I took a look at Google Earth, and the street actually looks quite nice, though I couldn't actually see the property in question. However, the fact that its far from shopping centers means your tenant pool will be smaller than if you invested in a more accessible area. There is the upside in terms of location, which is proximity to Vance and the Mercedes plant. Outside of Mercedes employees, however, your limited in terms of employment options in that area. 

The proximity to one great employer aside, you said annual rents are just over $31k for a 5-unit prop, that puts monthly per-unit rent at just over $500. Honestly you can do better, with less work.

You could likely drive down the price, but then you need to ask yourself if you have the time and energy to devote to the substantial rehab this place requires? If you're looking to create passive rental income, or even active rental income, I think there's easier ways.

Of course, you know more about this property than I do, and there may be things I don't see. I would advise you, like I do all new investors, not to force something to work just because you're anxious to get in the game. You don't need to wait for the perfect investment, but if a property keeps throwing up red flags or is going to require more of your time and money than you can reasonably commit, it's better to wait a little longer than to pull the trigger on something that will weigh you down.

Best of luck!

Clayton

I have to agree with Clayton, although he know WAY more about this than I do. Chew on this a little.

Double check tax numbers and make sure those taxes aren't exempt in any way. Also, for an investment property expect to pay about half a point higher in interest, unless you plan on living onsite. We just closed at 4.75% @ 30yrs and that was the best I found. You're looking at least $30k in repair. That would probably be a minimum. You can't just patch a 31 yr old roof.... let me rephrase. You shouldn't just patch a 31 yr old roof. Plus the mold issue. How are you planning on funding these repairs?

You can get as aggressive as you want with your initial offer. Doesn't mean they will accept it. It's been listed for 210 days for a reason.

Good luck!

Originally posted by @Jamie O'Brien :

I have to agree with Clayton, although he know WAY more about this than I do. Chew on this a little.

Double check tax numbers and make sure those taxes aren't exempt in any way. Also, for an investment property expect to pay about half a point higher in interest, unless you plan on living onsite. We just closed at 4.75% @ 30yrs and that was the best I found. You're looking at least $30k in repair. That would probably be a minimum. You can't just patch a 31 yr old roof.... let me rephrase. You shouldn't just patch a 31 yr old roof. Plus the mold issue. How are you planning on funding these repairs?

You can get as aggressive as you want with your initial offer. Doesn't mean they will accept it. It's been listed for 210 days for a reason.

Good luck!

We where going to finance the repairs by negotiating the sales price to reflect the deferred maintenance.   Ideally we would be getting a credit back form the seller at closing.  

Originally posted by @Clayton Mobley :

@Wilson Lee Welcome to BP! While MFRs aren't my personal area of expertise, I have to say my gut on this one is that you're trying to make it work when it doesn't. Especially now that you know there's a mold issue, likely needs a new roof, new flooring, and likely other deferred maintenance issues due to a neglectful landlord, it just sounds like this is going to be way more trouble than its worth. For the amount of money you're looking to put down (especially once you factor in these costly repairs) you could have a couple turnkey SFRs cash flowing without any hands-on from you. 

Of course, you might like the hands-on aspect, so Turnkey might not be up your alley, but this property still seems like its a bit too much to bite off for your first go 'round. You've mentioned its rural, which isn't necessarily bad. However, while a lot of people in AL like living in rural areas they typically go the SF route (we have luck in areas like Pinson, Graysville, Trussville etc). I took a look at Google Earth, and the street actually looks quite nice, though I couldn't actually see the property in question. However, the fact that its far from shopping centers means your tenant pool will be smaller than if you invested in a more accessible area. There is the upside in terms of location, which is proximity to Vance and the Mercedes plant. Outside of Mercedes employees, however, your limited in terms of employment options in that area. 

The proximity to one great employer aside, you said annual rents are just over $31k for a 5-unit prop, that puts monthly per-unit rent at just over $500. Honestly you can do better, with less work.

You could likely drive down the price, but then you need to ask yourself if you have the time and energy to devote to the substantial rehab this place requires? If you're looking to create passive rental income, or even active rental income, I think there's easier ways.

Of course, you know more about this property than I do, and there may be things I don't see. I would advise you, like I do all new investors, not to force something to work just because you're anxious to get in the game. You don't need to wait for the perfect investment, but if a property keeps throwing up red flags or is going to require more of your time and money than you can reasonably commit, it's better to wait a little longer than to pull the trigger on something that will weigh you down.

Best of luck!

Clayton

 Mr Mobley,  You are correct.  After looking at other options on the market now, That place was over price and the depth of deferred maintains was above my risk tolerance.  If something when wrong in the rehab,  we may have needed to use credit cards, or a personal line of credit with high interest to finish the job. 

So I found a 4 plex in Anniston Al

130,000 asking;  500/month rent;  4 units. 2bed/1 bath. New renovation 3 years ago, tiled showers, new vanity, new counter tops, new water heaters, new roof. new HVAC. 

100% occupied with 3 of the renters on there 2nd lease.

Annual Operating expenses at a total of $8504.21  This is there actuals for 2016 (including property management)   My proforma is 9894.00 Annual.  accounting for increase tax and vacancy loss.

Pro forma Annual Operating income $14,106

@Wilson Lee Glad to hear your dodged that bullet! I am not familiar with Anniston personally, but these numbers look much better. The longer term tenancy is especially good, and the recent reno isn't hurting. I was a bit afraid the reno was going to be all cosmetic but new water heater, HVAC and roof is a substantial upgrade. I would still advise you to get info on the life of other big ticket capex items (like flooring or appliances), and check on issues like foundational integrity (when was it originally built?) mold etc. Likely not issues if this has been as well taken care of as it seems, but always check.

From the info you've given, this one looks much better. Again, I'm an SFH guy, but if there is some good tenancy and not a lot of risk of vacancy (you won't have to be doing a lot of disruptive rehab work, etc) this could be a good bet. Given that this isn't my niche, I certainly don't want to position myself as the final word on this deal.... so I'd say maybe find some veteran MFR investors on BP and have them weigh in.

Good luck!

I found the sellers rehab cost,  This is a small town with chatty contractors.  

$20,000 - purchase,

~$6,000 holding,

$41,000 rehab

$67,000 in  asking 130,000

I want to come in with a lower offer.   It has been on the market for 50 days

Updated over 3 years ago

Also, the rehab cost are reflected in public documents

Just out of curiosity, are you aware of and taken into consideration the environmental issues in Anniston?

http://chemicalindustryarchives.org/dirtysecrets/annistonindepth/pollution.asp

Update on the 4 plex in Anniston. We offered 121,250.  10 day inspection of both the building and his leases, rent is pro rated at close, Lease security deposits transferred to buyers. 

They gave a verbal counter of 128,000 and removed a lot of our contingencies.  They wanted to keep all the rent they collect in the closing month.

I asked for the counter in writing.  I felt I when through all the effort of making an offer in written and it was only fair they put in the same effort.  

My realtor chilled off and got silent on me for a week.  No update, no email.  When I did get a hold of her, she said she as not reached out to the listing agent.   She had other showings to do.   She expected to get an written offer form the other side.   The sellers agent finally came back to say they had not started writing the counter and where waiting to hear back form us.

I felt like this deal was slipping away because no one was communicating. I got the number of the seller and called him up. We chatted for about an hour, talked about his earlier investing days. We ended a call with a settled number, 126,000 and all my contingencies added back. Plus the seller will give me a credit back for the lender's appraisal. The numbers work, I am protected, and It is a good price.

So, no we are heading in to inspections and the question on my mind is can and should I aggressively re-negotiate the price by nitpicking the inspection and leases? Grated, I would not dream of fabricating a defect.  But a number of things can come up in a building inspection that I can argue with a degree of latitude on.    

Also, I have a question on HOW I should negotiate them,  Should i ask for a price reduction, Should i ask for a credit, or Should I involve the lender so they require the seller remedied the defect before closing.   Other than the 3 options above, what are some other ways to negotiate a defect found in an building inspection? 

I will ask for a price reduction or credit at close if the inspection finds any immediate major fault.  I am just unsure of how to treat the little things.