four plex located in historic district

12 Replies

Hi Calvin!  Unfortunately, there are too many other variables in play to determine whether or not this will be a good deal.  Things such as property taxes and insurance will have a material difference, as will the utility situation and whether or not you are responsible for any portion of them.  In addition to the repairs you intend to do now, how much of that is cosmetic and how much is addressing big ticket items such as roof, windows, HVAC or appliances?  If not addressed now, within how many years will they be?  Is the historic district robust or are housing values declining?  All of these things can affect your analysis of the potential deal.

@Calvin Kennell When you have historical house you always have to add lead paint and asbestos in the same sentence. It doesn't mean it hasn't been abated already but you should assume it hasn't. 10-20k work will disturb a good part of it I am sure. 

@Calvin Kennell

I would consider the property taxes to be exceptionally low, which is great, as is the fact that all utilities are separate, allowing you to bill those right back to the tenant.

Based on what you've provided regarding rents and your anticipated rehab budget, this property could have nice cashflow. I would have two main concerns that I think will help determine whether or not this will be a good deal.

The first would be determining what a realistic exit strategy would be. This house is 118 years old. I feel for every 10 years you hold it, the harder it becomes to sell it and you may see less or no appreciation compared to newer homes in the area. You could eventually have a very illiquid or dilapidated property.

The second would be the financing. With the significant amount of up front repairs this requires, in order to get a good return on your investment, pulling off a BRRRR-like refinance is the only way I see it happening. Otherwise, with 80k in repairs and a down payment, you could easily be into this deal for over 110k. With a good refinance, that number could drop to anywhere between 0k-40k, which would obviously be an improvement over 110k.

If you then feel comfortable with the age of the home and the ability to refinance, I would like to think you could conservatively cashflow $150/month/door when self-managed.

Originally posted by @Calvin Kennell :

the seller said there is no asbestos or lead paint to worry about but how do my own due diligence @Mike Reynolds?  

You can have an asbestos test done or have the current owner provide you with proof it has been abated. 

@Calvin Kennell definitely check into how strict the historic district is if you haven’t already. Dealing with a historic property can be a major PITA, potentially adding a lot to the expense and stretching out the timeline of any work you plan to do on the property. When it’s time to sell, it being a historic property could limit your buyer pool as some buyers won’t want to deal with a historic district (especially if that particular one has a reputation for being difficult to deal with). For example we have one in town here that has caused several projects I’ve worked on to more than double in price and it has taken many months, up to a year even in one case, to get approval on even relatively minor projects within that district, so many locals “in the know” choose to avoid working or owning in that area whenever possible. This advice may or may not be germane to your project depending on how strict the board you’ll be working with is, but something to look into on the front end for sure.

The IRS greatly reduced the renovation tax credit in 2018

But historic homes may still qualify- so I wouldn't let this make or break your deal, but it could potentially also qualify for a tax credit if you renovate. 

https://www.irs.gov/businesses/small-businesses-self-employed/rehabilitation-tax-credit-real-estate-tax-tips