Would you consider this deal?

Question

Hello all-

I looked at this property today listed for $30k. The property has 4 units, each unit is 2 bd/1 ba. Each unit can be rented out for at least $550/mo with owner paying the utilities. I plan to hire a property manager @ 10%. However, the biggest issue I see with the property is TAXES!!

The taxes on the property are $8k/year. The property's total value was assessed at $189,200 as of 11/14/09.

The property doesn't need much work, no more than $15k before it is ready to be rented out, so on paper it looks like a great deal except taxes. Do you guys have any opinion on this? I am really confused with this. Do I have a shot at appealing the taxes given the fact that the property was assessed as recently as Nov 09?

Thanks in advance for all the help. As always, much appreciated.

Account Closed · Answer

just so you know, on my properties in nc, i pay about one month's rent for property taxes

Account Closed · Answer

a 4 unit for 30k that only needs 15k of work? are you sure?? is it a legal 4 unit???  i could spend more 15,000 just fixing up one unit..are you absolutely positive that's all it needs?

Sharad M. · Answer

Thank you for the great information. That helps a lot. I am doing all my due diligence, and part of my due diligence is to leverage off the wealth of information here.

Steve Babiak · Answer

2) In my area, buyer usually is allowed to select title / escrow company.  There are some exceptions to this that happen commonly, here are a few: if bank owned, the bank might be paying for title work; it might be a short sale flip where the title company has to be a specific company to make the deal possible; the title company being used is offering discounted rates (renewal rates) for the title policy and nobody else will do that rate.
          
Regardless, YOU ALWAYS HAVE TO DO YOUR OWN HOMEWORK AND DUE DILIGENCE.  Caps deliberate.

Sharad M. · Answer

Thank you guys for all the great replies. I can't thank you enough. Last couple of weeks have been busy. On a property, we made an offer, the seller came back with the following requests:

1) Seller to provide no survey
2) Title company to be of seller choice

Would any of these raise any red flags? Thanks again for all the info.

Just Don · Answer

I would go over the tax assessor info with a fine tooth comb.  They make more mistakes than you can imagine.  Also compare other similar buildings for taxes and see if they are in line.  Are the tax rates that high? Or how did they get to that assessed value?  Income approach?

Brian Levredge · Answer

The numbers look good but there is certainly a lot more to find out.  What is crime like in the area?  Vacancy?  What are the short and long term job prospects for the area and region?  These will affect your cash flow.  Obviously if it takes awhile to rent the units because of those factors, then this isn't much of a deal.

Sharad M. · Answer

Thanks guys for all the great responses!

@ Bryan - When I looked at the property, I didn't notice any major issues with the property. No leaks or any such thing, but I am having a contractor look at the place in next couple of days to get a quote. Given the purchase price, rent, and taxes, what's the max you will spend on rehab cost to still make the property cash flow?

@ Brian - Given the REOs in the area in last few months, it's very hard to get a reasonable comp. I am buying this based solely for cash flow. I don't plan to sell it at least for next 10-15 years, so I didn't concern much about the equity. Do you think that's a bad idea if I plan to hold it for very long term?

@ Hassan - Thanks for the idea. I definitely plan to appeal the taxes as soon as I have the possession of it. I am calling a RE attorney in the area to find out more on the appeal process and success rate.

@ Tyler - Tenants pay all the utilies except water. It's not a flat roofed property. I am having a contractor look at the property in next couple of days to get a solid quote.

I have one more follow up question:

On the properties you guys own, what % of rent are your RE Taxes? The property I am looking at, the taxes will be one-third of the monthly rent. I understand that's above average, but what do you guys usually average at?

Thanks again for all the great responses!

Hassan Omar · Answer

The price works out ok. One thing you can do before you get it occupied is appeal the taxes. There is no gaurantee that it will work, but even a smal reduction could make a huge difference