Posted about 2 months ago

Analysis paralysis? Or is discretion the better part of valor?

So I promised stories of bad landlording and I’ve got 16 years of it under my belt. So while there should be (and is) plenty of material to draw from, I think it would be wise to juxtapose these with stories of the present.

Also, I thought briefly of changing the name of this blog to “mere mortal”. But I like the self-deprecating nature of “Bad Landlord”. Also, I have done some really bad landlording and I figure if I own it, I’ll be more inclined to fix it.

So BRRRR… Great idea and I’m trying to utilize that strategy but I’m finding it much easier said than done (with all due respect to David Greene). What I’ve found is that buying from the MLS makes it very unlikely to find something with enough meat on the bone to be able to cash-out significantly at rehab time. Most agents (to their credit) are pretty sharp about coaching the sellers on what they need to do to get top dollar for their properties. And (around here, at least) when a property (SFR and even more so Multis) goes on the market that does have an opportunity for value add, it’s rather like throwing raw hamburger into a tank of malnourished piranha; it’ll usually go over asking.

Two days ago I looked at an 8-plex in a new (to me) market. It does appear to maybe have some potential. Here’s a rundown:

Asking 125K.

Gross rent 3200/month.

Doesn’t appear to be a lot of deferred maintenance. (This is unfortunate because this is could be a good source of value-add.)

C/C- tenants and neighborhood

I’ve spoken to one appraiser who says multis in this market usually appraise for 40-50k per unit. I’m guessing that goes down a little with larger multis. Even so this should be able to appraise for at least 200k, right? Bud spidey sense is telling me if it seems too good to be true, it probably is. If it can’t be refied after purchase it wouldn’t be the end of the world; it would probably cashflow ok even with the relatively high expense/vacancy ratio expected with a C-class property. But it would be a very long time (about five years) before I’d recoup my down payment. So this would tie up my (limited) cash for a long time.

So I ask: is this how you analyze a potential BRRRR (in terms of how much of your initial cost you get back and when)? I’d love to hear your thoughts and I’ll endeavor to share my thoughts as I figure this one out. Analysis paralysis: what I expect is that someone will snap this up as I gaze into my crystal ball…