Should I Buy These 80 Units? Would You?


Well – here I go again…Decisions, Decisions.  I need your help, BiggerPockets, to figure this one out.  What do you think?

Here’s the deal:

You know that inbound thing that I keep telling you about?  Well, the other day I picked up the phone and it’s a friend of mine.  She says to me: “I’m standing here with somebody that I want you to speak with – here he is”, and she passes the phone.  Before I knew what hit me, the gentleman proceeds to tell me that he wants to discuss some property that he has owned for a while and now wants to sell…a few units.

Wow – I wasn’t ready for this one.  I am in the middle of restructuring the 10-unit that I bought in February, and was definitely not out there looking for any more deals this year.  But, that’s the wonderful thing about inbound – once word gets out that you are a serious person, deals tend to come on their own…

I know what you are thinking: I’ve been trying to find a deal forever man – what do you mean they come on their own?

Trust me!

Well anyway – he gave me his number and we got off the phone agreeing that I would fallow-up in a few days, which I did – I called him on Saturday.  We talked shop for about 45 minutes.  We talked monetary policy, inflation, federal regulations, finance, management, and just in general why we do what we do.  I knew at this point that he is a player, and I believe he knew that I am one as well.

Just as he began telling me about the few units he is looking to liquidate (80 units to be exact – holy bananas), he suddenly he said he needed to hang-up and told me that he’d call back in a few minutes – which he did.  Before I go on with the narrative, let me segue for a sec.

Negotiation, as we all know, requires a heightened awareness of the circumstances and surroundings – you are picking up clues to the puzzle, so to speak.  Most of what is said in a negotiation does not come out of someone’s mouth.

Well, based on what I’d heard thus far I took a guess that he was at his office, and the reason he needed to call me back was because he was interrupted by someone/something there.  I also guessed that more than likely his office was on the premises of the 80-unit – it made sense that it would be.

Thus, when he called back I immediately asked if I could join him at his office – YES was the answer… My day changed then and there.  I got off the phone and within the hour I was sitting in his office.

We spent 6 hours together.  Lots was said and I am pretty sure that whichever way this thing goes, I had made a friend that day.  The only thing you need to know about this conversation is that he is indeed looking to sell his 80-unit…ON CONTRACT!!!

About the Units

Disclaimer – I will be specifically vague in the following description of the property.  I do not have this bird tied down as of yet (although by the time this article come out I may).

This complex was built in the sixties.  Apartment mix includes 2 and 3 bedroom units, I am not sure at this point how many of each.  The neighborhood is not so good at all; typically I would not consider anything in such a location.  It’s not that the bullets fly there, they do not.  However, property values in this location are very depressed making it impossible to prudently justify spending money on the upgrades – I’d never get it out.

As I drove around, I thought they looked just OK structurally.

Who Is Bob

Having driven around the entire community once, I let myself into the office where I saw Bob (his name isn’t really Bob, but let’s protect the innocent!).  As I mentioned earlier, I spent 6 hours with Bob that morning and Bob turned out to be a really cool guy.  Turns out that Bob is in his 70’s, second generation real estate investor, and is ready to retire.  But, even though Bob is ready to retire, he is not ready to completely let go off the very substantial revenue stream that these 80 units represent.

So – Bob’s idea of retiring is to sell the entire shebang on contract and hold paper for ever more.  He doesn’t want a large down-payment because of the taxation ramifications.  For the same reason he doesn’t want to sell for cash period –  not only would he loose the income, but his tax bill would be worse than drilling a root canal without Novocain (I experienced that in Russia growing up, by the way.  If you ever need to be jolted back to life, this would wake you up – I guarantee it…)

What’s the Deal

Now – I am not going to delve into the financing in earnest at this time, partially because I don’t know and partially because it really doesn’t matter.  For what it is, where it is, and what type of management it will require, I have very specific guidelines whereby I would even consider this transaction.  Anything less is not worth consideration and is not negotiable.

I can not disclose my actual terms yet since this deal may have legs and I am pretty sure that Bob can read!   Suffice it to say that I would be looking for $8,000/month of Cash Flow – comfortably.

But with this we’ve arrived at the crux of the matter, because here’s the thing – I am not sure that I should do this deal even if I get every term I need…

I Am Conflicted

I have always believed in buying desirable units in desirable locations.  I have never done the low-income game.  I know that there is a need for it, but I feel guilty asking someone to live in a place that I wouldn’t live in myself.  Well, let me tell you – I would definitely be asking people to live in a place that I would not want to live in.  I will be forced to do the absolute minimum in terms of repairs and upgrades that I could get away with because the market valuation will not support either the higher rents or higher values – whatever money I put-in, I will loose in terms of equity. And those rents are what they are, and will never be anything but. This is uncharted territory for me…

But – this could be an awful lot of Cash Flow at the terms that I have in mind.  And, there wouldn’t be any banks involved.  So, I am conflicted…

Would you do it?  Should I do it if I can get these terms?  Heeeelp BP…. Leave you comments below!
Photo: ores2k

About Author

Ben Leybovich

Ben Leybovich has been investing in multifamily residential real estate since 2006. His area of expertise is creative finance. Ben works extensively with private as well as institutional financing. Ben is a licensed Realtor with YOCUM Realty in Lima, Ohio. He is also the author of Cash Flow Freedom University and creator of a cash flow analysis software CFFU Cash Flow Analyzer.


  1. Well Ben you could wholesale this great deal to someone would want these details.

    But you have a relationship with the seller to consider as well.

    At worst you can refer another trusted MF investor…

  2. Ask yourself- if you were low income, with a budget that required you to rent something in that price range- would you then choose to live there, as compared to the other options in your area for that price?

    Also, will you be able to handle or hire out the management of the complex? Is the cash flow worth the extra management work and headache?

    If the answers are yes, I would say go for it.

    • Hey James,

      There are several people working in the office. The office would come with the deal.

      As to your other (very good) question, the current vacancy there is 10%. But, I think it gets much higher than that, so the CF calculations for this are going to be based off of about 75% occupancy – that’s the only way. This is why likelihood of this getting done is not great, but I know my market…

      Thanks for reading James!

  3. Andy Teasley on

    Low cost rentals can be a great part of your rental portfolio. While, as you say, you can’t spend a large sum of money on them you can make them really nice so they will rent quickly.

    Low end rentals allow you to recycle materials from other job sites. How often have you taken out perfectly useable appliances from a unit you are upgrading just because the looked to be an older style? With low rent units you will move those good appliances into the low rent units and they will be an upgrade and work for you well there for free. I have lots of flipper friends who are currently working on lots of “mid-century” houses now. Their houses have those simple dated kitchen cabinets built out of plywood instead of new slick kitchens built out of sawdust board that they need for the big resale price. I remove those dated kitchens for them and install them in my low end rental units with new hardware. Plywood kitchens last much better than sawdust board kitchens almost every time.

    Low end rentals often come with government supported renters, Section 8 and other programs provide you a stable rental income stream with additional controls on those tenants.

    If you can buy those units right so they cashflow from day one after you have run your numbers you will probably find yourself in your seventies looking for someone to give you payments to buy them from you. I like low end rentals! Andy

  4. I might pass if the units or complex do not have any differentiating features; where is the competitive advantage that would cause a tenant to rent your units over another generic 2 or 3 bedroom?

    It sounds like you are basically buying the terms, not the property.

    • Mr. E. Billings,

      You are a very intelligent and intuitive person indeed. Term is what I would be buying, and I haven’t touched on any of that in this article 🙂

      The terms I would be looking for have much more value than the structure. Terms + $8,000/month of Cash Flow = I may be interested.

      Thanks so much for reading and commenting!

      • Well, yes, but you ultimately need to sell the units to prospective tenants: I tend to shy away from undifferentiated units or vanilla boxes, I like to have a unique factor in addition to price / value in each property, whether that is a rare fourth bedroom / 2nd or 3rd bath or central HVAC in a neighborhood that is mostly radiant heat.

        Since it sounds as though Ben is not spending on upgrades to buy those features, if the property is in a depressed location and the units are nothing special, why would I rent the units as a tenant? These just don’t sound like desirable units.

        I have trouble seeing potential and value here. The cash flow is good, but cash flow is a pre-requisite to any good investment, and can be gotten elsewhere, in better neighborhoods with better units, as Ben has done in the past.

        • E. Billings,

          You are hitting the nail on the head – what is value? This is not something I’d do if I had to pay money for it. But, $0 down and $8k/month of CF…

          I know I’d be buying a job, which goes against my principals. However, even established systems and put a management team in place, even if I am 50% wring about the cash flow – this is a lot of “life-changing” money…

          So, what’s value? Is my wife at home (she has been begging me to do a deal that would got her home to our kids) – is that value? Is it worth taking on a job?

          You are preaching to the choir about Desirability. But, there is another side to that, but that’s conversation for another place and time ::

          Thank you so much for commenting!

        • There’s your answer – 0 down, $8K/month cash flow that allows your wife to stay home? Offer her the deal, she gets to run it. With a team already in place, most of what she’ll have to deal with doesn’t require her to be on site – if she isn’t interested, then there’s no deal here for you.

        • Scott – lol

          Actually, Patrisha fully participates in the business. She handles the book-keeping, leasing, and reporting side of things. I am the finance geek,

          She knows and is fully prepared for the reality that she will play a hand in management, and she seems to be for this one. However, in our family she is the gas pedal and I am the breaks when it comes to this stuff. Works well for us…

          Thanks so much for your comment!

    • Hey Junior,

      Basically, carrying paper is owner-financing of some sort. Can’t really get into all types here since that’s 40 pages of CFFU or so. But, what it means for this deal, should it move ahead, is that there would be no institutional lenders involved…

  5. Mark Ferguson

    Ben, these would be my biggest questions as someone who has never owner a large complex.
    1. What is the worst case scenario? Can you get out of the deal if you find out you hate the units and it is not worth your time after you buy it?
    2. How good is the current staff? It sounds like the owner has an office there and obviously works on the buildings, how much does he do? Is the staff any good or does he manage all their tasks? How much time will you have to spend on the staff?
    3. Would buying this keep you from buying a property that fits your ideal situation in the near future? Or are the terms good enough that you could buy this and more ideal properties if they come up?

    • Hey Mark – cu t to the chase why don’t you 🙂

      1. No money down – period. And I won’t take this on unless I can walk…
      2. I have my own people, but I think the staff, those that I’ve met, are OK
      3. It would not keep me from buying. This will have to stand on its’ own, and with $0 down…

      I’m thinking Mark

  6. Without the financials or the terms we have nothing to go on in helping you… except philosophy and strategy and tactically. 8k/month cash flow is nice but if your skin crawls a little every time you walk a low end property, what’s it going to be like in five or ten years when the property needs a new roof and you have sink capital into the deal*? Will your heart sink a little every time you see the property manager’s phone number calling? What is the emotional cost of owning a property that you have to hold your nose just thinking about it? Would you be embarrassed to have anyone find out that you own the property?

    One of the things I try to keep present in my mind is our business plan. That is because it’s so easy to lured out of your core strategy by a seemingly good deal. If your strategy/biz plan/motto/mission statement is something like ‘providing nice places for nice people to live in’ then acquiring this property will necessitate changing all that to maintain your internal integrity, or starting a new slumlord division which is bandaiding over the issue. What does your strategy/biz plan/motto/mission statement say? Does this property fit?

    Tactically speaking, why has this guy offered you site unseen (almost) such a good deal? Are you two really a match made in heaven or are you just the first warm body that’s even been willing to talk about the deal with him? Maybe it’s not such a good deal but it’s where the seller figured he’d have to start just to get someone interested. Maybe it’s no good at all, I’m not even in the deal but my spidey sense is screaming 50 year old low end building = Deferred Maintenance!!! The seller didn’t fall off the turnip truck yesterday and it’s like Warren Buffett says, if you find yourself at a poker table….

    Now many reading your post will do the math and go 96k/year that’s my financial freedom! But freedom ain’t free if you cringe every time you think about the property and your hand shakes every time you have to write (another) check on the property… and if you’re embarrassed to even let your friends know that you own it.

    Hope it works out the way it should, keep us posted.

    • Here-in lies my dilemma Giovanni…

      I am sure you understand why I can’t disclose the terms I am looking for at this time. There is no deal as of yet. 8k of Cash Flow is not at all what I am being offered – it is the minimum that I will accept to continue entertaining this opportunity. At the moment we are quite far apart, but there is a chance…

      I concur with everything you say – it’s a job no matter how you twist it. It is potentially a very well-paying job, but a serious job. For 8k/month of CF and other terms in place, it may make sense…we’ll see

      Thanks so much for you comment Giovanni!

  7. Ben, before signing make sure you have it inspected- structural, plumbing, heating, electrical and roof . Talk to the building department and see if there are any complaints about the building and surrounding area ( they know a lot) also local property managers. After all that is done and still 50/50, try for $125 a door. There’s always another property. I would also compensate your friend for calling you.

    • Jim,

      Good idea about calling the building department – thanks and will do! At the moment we are very far apart on $100/door, which is why I think that my chances are slim. But, that’s $100/door going off of 75% of verified revenue…if I can get it, I think I’ll be OK Jim.

      Thanks so much for your advice!

  8. I’m a green as grass newbie and don’t own any cash flow property…..yet. But, I see two things that would scare the holy crap out of me. The first is that you are supporting a staff of three for eighty units. That, to me, seems like a LOT of labor unless they are all part time at about ten hours a week. Combine that with an expected 75% occupancy rate and I would be very concerned for the LONG run. If that much labor is needed to maintain the place, and turn over is that high NOW, and the property/area don’t justify updates, it sounds to me that you’re possibly buying a plane that is slowly spiraling toward a very nasty crash. That 8000 per month cash flow will slowly decline as maintenance continues to eat into cash flow. Of course, your experience and first hand knowledge trumps my impression based on the facts you are able to provide right now. I’d just be sure that the deal looks good twenty years from now, too.

  9. Brandon Turner

    Ben – obviously without knowing all the details I can’t say for sure… but I’m definitely leaning toward DO IT.

    🙂 The apartment complex that I “manage” (hehe) is not in a great area. It’s not a war zone, but not amazing either. I don’t get Yuppies to rent from me (mostly lower income, blue collar folks) but I love the place. I just account for the fact that my repairs are going to be a little more, I will have more drama (Which I try to outsource to my manager) and it’s not going to appreciate like a great property. But that’s okay – because for me – it’s an ATM machine, nothing more, nothing less. It serves my purpose.

    So yeah, that’s my 2 cents!

    • I hear you Brandon – it’s a judgment call for me…I mean the terms I have in mind are pretty killer – 1 chance in 8. But, if I were to get those it would be like – HELLO, what now. I have to make up my mind 🙂

      Thanks man!

  10. Brandon Krieg on

    Hi Ben,

    For me, it is all all about the numbers… and your numbers seem good. There are a lot of good tips here, with inspections, etcetera. But you’re not jumping into your first deal, and you know value when you see it. If it’s there, go for it.

    Obviously, run your numbers backward and forward, and be conservative when it comes to vacancy rates and repairs. But if it’s good, do it! It sounds to me like you’re beginning to stretch out of your current comfort zone, and are feeling the uncertainty that always comes with growth.

    It seems like this could be a great addition to your portfolio, and potentially change your life very positively. Look just a tad more on that, and in the end, follow your gut.

    • You know Brandon – you’ve hit the nail on the head (without even knowing it possibly) of what is holding me back. In my brand of RE numbers are a lot, but not everything by a long-shot. That’s the pepper in this one 🙂

      But, the numbers are very, very attractive…I have a feeling that this is going to hang on whether I can get the terms I need.

      Thanks so much for reading Brandon!

  11. $8,000 cash flow without any work at all is amazing !! I assume you factored in all the management costs and all so this is a really good deal. Can you tell me what the downsides are ?? Why is it going for so cheap ?? I would be very interested in purchasing or partnering with this kind of cash flow and no effort involved. What kind of ROI is this ? Like 60-70% cap rate ?? Wow !!! This is an amazing deal !

    • Hey Sri,

      Well – first of all it’s not a deal yet. It may, just may become a deal, but for now it is at best a very loose proposition. The proposal that has been put in front of me is not even close to the terms that I would find acceptable – yet.
      Secondly – while it’s cheep, it is not cheep for what it is and the management it will require.
      And lastly – it will be a LOT of work, which is part of the reason for my hesitation.

      It’s pretty cool to have an option at a deal like this, but the type of terms that I would need on this make it rather unlikely – but we’ll see … 🙂

      Thanks so much for your comment Sri!

  12. Seems like a solid deal. Is it a high crime area? I think sometimes people
    hear low rent area and think crime. Sometimes these are just
    hard working people that may not be able to afford a
    better place.

  13. This is what I observed from your blog:

    – Seller’s Financing (flexibility, less risk)
    – Low down payment
    – Seller’s intention is to hold notes indefinitely
    – Inflation is on your side
    – Currently in an appreciation market

    – Possible higher turnaround
    – Higher vacancy
    – Possible maintenance issue

    You have a lot of flexibility in this matter. If you acquired this property and the cash flow is sustainable, it will be worth it to maintain long-term. If you see a decline in cash flow, you can profit from it short-term. You are also protected since the seller is taking the note.

  14. I would have already wished the old owner a nice retirement.

    Where a lot of investors go wrong is this idea if the rental unit is not one they would live in, they are doing a disservice to the tenant. I find this kind of strange as you are seeing this from an perspective. If these folks have a roof over their heads (that is not leaking) the toilet flushes out of their apartment and the electric works they are way ahead of the game.

    Do you know how many of these tenants want to live in this building solely because you will be providing these simple necessities? True slumlords do absolutely no repairs, except those they are forced to do, for this you get a low rent and no credit check. You may however find everything you own gone from your place on a regular basis.

    I have a tenant who could not believe I change the locks between tenants, and have installed steel doors with steel jambs on every apartment. So the tenant can go to work knowing the things in their apartment will be there when they get home.

    There are no bullets flying around my units either, I don’t think I could live in one of my units, no central air, and I know my contractor van would be broken into or missing in the morning.

    However the places are bullet proof, i.e. no carpets, no access to the mechanicals that heat their unit or provide hot water, no storage locker, no laundry, just a basic place to shelter in. My 3 units net cash flow at $800 for each building. When the neighborhood is a peace I have no vacancies, I think your number of 25% is way off, probably 5% would be closer to reality.
    There is a huge shortage of low income housing, solely because the banks will not lend on building low income rentals. Would you build this 80 unit today, up to the modern codes, for only $8000 a month cash flow? The value in low income is strictly the cash flow, when you want to unload these unit someone will want to walk into your shoes with the same kind of deal.

    Mark Twain once said RE was a great investment because they are not making anymore of it. Low income is a good investment because as Jesus said “The poor will always be with us”.

  15. Dennis – thank you for your comment. I like your style: badaboom – badabam, what’s the problem…?

    I took note of everything you said! I can only add the following saying (a favorite of my attorney):

    Even Jesus Christ couldn’t pay you if he were broke… 🙂

    Thank a lot for taking the time!

  16. My wife is one of the people Dennis describes, not wanting to acquire any property she would not consider living in. While I’m on the other extreme and think to much just of the numbers.

    Would the work you are talking about be primarily initially, and would you plan to outsource the vast majority of it once some time has passed?

    If this was included, I may have missed it, but where does the note go if the owner was to pass away during the finance terms? Would you just have to pay to whomever his will stated?

    The zero down would be huge to me, definately something to consider seriously as you are doing.

    • Hey Shawn,

      This will be a lot of work in the beginning in terms of setting up systems. This will continue being a lot of work in terms of managing the tenant base. I’d be buying a job – I would be kidding myself thinking that once I have a team in place, I would not receive calls – I would!

      If both you and your wife have full-time jobs and RE is simply a means of diversifying your portfolio – listen to your wife. You don’t need another job. I am already full-time in RE so it may make sense to me.

      As to the Note – I don’t care where to send the check…

      Thanks a lot for reading and commenting!

  17. Ben,

    I can’t provide enough due diligence commentary here to materially help, but here’s a summary outline to consider. A few were already mentioned above too. I’ve just added some specific sources/thresholds.

    Personally, I started with a 6-unit that went ok and a 12-unit and then quickly progressed to 80 units and beyond. So, I’ve been down this road.

    Note, we have close to 1,000 doors (80 to 170 units) now and we’ve seen this scenario before. Not a huge fan, but we’d look.

    First (Market)

    – You mention it’s not a war zone, but do you know the exact violent crime, drug crime, and property theft crime for that asset and zip code and the surrounding zip codes and their trend? You can leverage,, and the local precinct data.

    – What are the relative school rankings? For moderate to low income they should be above the bottom 1/3 and ideally in the middle. This will help your rental options – especially with 3 bedroom units – and also creates a floor on surrounding market grade.

    – What is in your 1/3/5 mile area in terms of competition? Are there a lot of 3 bedrooms already? They can be harder to rent unless they have larger than average sq footage, layout, outdoor space, etc. Do you know that unit competition in general in the 1/3/5? What is the unit count competition by grade? Job centers close? Retail Centers?

    – There’s more but I’m hoping the above has already been done or in process.

    Second (Physical Asset)

    – Get the asset tested intrusively. A Phase 1 environmental will just tell you whether there is the possibility of environmental hazard (lead, asbestos, etc.). A Phase 2 or specific hazard report will let you know for sure. Odds are a 60s building has one or both unless they have a current remediation certificate.

    – Does your locality require a CO (Certificate of Occupancy)? If so, get it. If not require it pre-close.

    – Has there been a recent fire safety inspection? Current ALTA survey?

    – If the above are good, then you can look to spend more money on general and structural.

    No matter what you need to allocate close to 12k to 15k in 3rd party inspections and reporting for this deal just to cover your butt.

    Even with owner financing, you can assume that some of that payment will be principal. So even if you walk away you’ll be leaving money on the table and a ton of time and brain damage.

    – There’s more on physical, but the above came to mind quickly

    Third (Financials)

    – Have the Rent Roll and T12 looked at by a local bank or mortgage broker. Get a sense of their underwrite. Even though it’s owner financing, you may at some point want to take out the owner financing or sell the building. Keep in mind, it will need large capital infusions from time to time (Roof, Parking, Exterior Vertical surfaces, Mechanicals, etc.)

    – What is the breakeven occupancy? Once you include market vacancy doubled, realistic payroll (3 people for 80 units is too much. It should be 1 manager 1 maintenance and both working onsite) and your lender financed debt service, how safe is the deal realistically?

    – Note, Seller financing on this size asset normally happens when the deal can’t be purchased via financing and/or a true installment sale. There are exceptions, just very few.

    To sum up…

    It’s great that you are getting these types of phone calls. You are obviously doing the right things. Just make sure that observer bias isn’t impacting how you’re completing your due diligence. The emotional need to get the wife home per her request is both strong and admirable. But, don’t let it get you into a deal though that will crush your time, emotional energy, and pursuit costs if not outright capital loss.

    • Chad – have you ever smelled the wonderful aroma of competence? Doesn’t it smell fabulous 🙂

      I am not anywhere near the physical due-diligence stage yet. I don’t think there is an urea-formaldehyde, or asbestos in these structures. Led is iffy but also unlikely…

      I’ve never chased after $$ – I assign more value elsewhere. That approach ahs served me well. This deal is well outside of my parameters, which is the reason for my bugle…

      A to ALTA – this thing will need to be checked out top to bottom. I can see all kinds of title issue possibilities – right on…

      Looked at your website – interesting. Would love to connect with you. Look me up on BP or my site

      It is a pleasure to make your acquaintance Chad. Thanks for taking the time to read and post!

  18. Andy Teasley on


    I have changed my mind on this deal. I think there is no way you should be buying this since it doesn’t meet your high standards. Tell the seller no thanks and give him my number 760-343-2404 Andy 😉

  19. Matt DeVincenzo on

    Ben let me first start by congratulating you! This is a wonderful position to be in, the one where you are contemplating whether or not you would like a 100K/yr job. That’s not investing I know, but just to have that opportunity BECAUSE of investing like you have is great

    Now I’m by no means an extremely seasoned investor, but I see some things here that you didn’t mention that may facilitate the decision. You’ve mentioned that you only buy with the possibility of “expandability”, which this property has little to none of as far as increased income ect. But it does have 3 managers which others have mentioned is too many, and I’ll assume they’re right based on having the practical knowledge I don’t yet. This offers two possible options for “expandability” that I see:

    1) You take what would likely be the quickest route, though maybe somewhat unappealing route and fire one of the people reducing your expenses from that day forward. So you now have potentially increased your NOI by I would guess at least 15-20% (12-1600/mo).

    2) You have an “indirect expandability” available to your investments as a whole. Not knowing your entire business structure this may be off, but you mentioned you self manage but at some point would be training managers to take over. This may be that opportunity. There are 3 people who are familiar with managing properties, and once you have the systems in place at the property they already run they can expand it to your other properties. Assuming you don’t already have any full time maintenance staff for those units you now have the opportunity to reduce maintenance costs for other units by using your own maintenance personnel. This may also reduce the time you have to spend on those units. So while you will be buying yourself a job there the tradeoff may not be as great as it seems at this point.

    All that being said if you don’t buy this property, I’m sure you will be just fine growing your assets in the class and area that you feel comfortable in, and I’m sure a friend in this potential seller that could help grow your business at some point in the future.

    • You are exactly right Matt – this property does not have the hallmark of my typical deal relative to expandability options. It is what it is and it’s never going to be anything other than what it is. Like you mentioned, I suppose there are things that I would be able to do around the edges, but the thin is that’s not typically my style – and I know it. This is why this decision is unlike any other…

      Thanks so much for your comment Matt!

  20. Ben –

    With this type of property I think you need to forget about what you would need in a property as a “discriminating renter”. Look at it from the viewpoint of this type of tenant.

    What they are looking for will be different than what you would be looking for. A plain “vanilla box” that is clean and has a decent interior may very well be a few steps above the dump they are used to living in. As far as the rents go, are you sure you can’t inch them up over time just a little bit each year?

    These types of properties can also be very good for cash flow if you can manage them correctly. And if you can do your tenant screening so that you are really picky about who you choose, folks like this often become long term tenants for you. They don’t have aspirations to become homeowners; they just want to put in their years in their steady blue collar job and retire on the day they hit that 20 year mark (or whatever that day is). I also found that they are generally too lazy to move. So if you take care of the basic repairs needed quickly they are good.

    Your ideal tenants are somewhat different for just about every type of property. Good luck.


    • Thanks Sharon,

      The rents might be able to go up, but on this property it’s more of an afterthought than a plan of attack – which is what I am comfortable with and what I do. We buy existing revenue stream and then improve it and back into value – not going to work on this one. For the most part, it is what it is 🙁

      Another thing is that there is management and then there is management. I typically like to sign 12 month leases on well-vetted tenants – not here. It currently operates month to month (easy come easy go). Even though there aren’t bullets flying, enough other things go on that the owner wants the freedom of a 30-day By-By – done. No eviction process.

      I am all for stepping out of the comfort zone to move forward. I do that on every deal. This is something else though. Life is not all about money…we’ll see.

      Thanks so much for taking the time Sharon!

  21. Two words; first is “DETROIT”. People bought housing thinking, how could I possibly lose money it’s darn near free. Entire neighborhoods can decline to the point of having NO value, none, can’t sell it for a dollar. Mass exodus can take you’re vacancy to 100%, again study Detroit.
    The second word/phrase; “EXIT STRATEGY”. If you pursue it, have a way out that won’t wreck you’re other properties/business.
    I’m near Dayton, OH so I have a chance to buy SF homes for $5,000. I own NONE of those. The areas like that are dying, last one out turn off the lights, ha ha. There will be other deals, this one could pull you down like a millstone around your neck.

  22. Ben – I’m a big fan of yours. Your posts have all been helpful, and listening to your story on the BP podcast was an eye-opening experience for me. And – many people far more wise than I have provided excellent insight above, so I feel a bit presumptuous providing my own opinionated thoughts, but here goes:

    Every deal should be compared against your long-term goals. Based on my read of your story, your long-term goal is singular, simple and not-so-long-term: create enough passive income for you and your family to do OK. Insofar that this is accurate, this deal is a no-brainer. In fact, passing on this deal would probably conflict with your goal, and would be a ‘mistake.’

    With that said, there are several other factors that come into play such as appreciation, upkeep, etc. And I realize that this is the type of property that you have hoped to (and been successful) avoiding. But – I would call these preferences ‘a means of achieving your goal’ rather than your actual goal.

    All told, this means that if the property produced good passive income, after factoring in all of the negatives, that purchasing is probably the right decision.

    Best of luck!

    • Jeremiah – thanks for the kind words!

      You know – I think that I am leaning toward it more and more. The only thing that this thing is not – it’s not passive. But, with the right team under my management it is certainly doable.

      What is being proposed, though, is not anywhere near 8k/month of CF. If I can get that (and some other terms), this will be very serious specifically because my thinking is in line with yours:

      “…not the goal, but the means”

      Thanks so much for taking the time to comment Jeremiah. It makes me happy that you and others find my thoughts useful!!!


  23. David Morrow on

    I would lean toward this deal, too, if you ever get your desired terms for many of the reasons that have been stated already. The main objection you’ve expressed multiple times which hasn’t yet been addressed is the amount of work this property will require upfront. What is e bottom line of your cost-benefit analysis on the work you have to put in before this property is on cruise-control? How does the quantity and quality of work required to make this income stream passive compare to the work required to find, research, negotiate, purchase, improve, and systemize other properties until you’ve attained a comparable passive income? At 8k CF, you’d have to replicate your last 10-unit deal at least FIVE TIMES to match up.

    I think the bird in hand might be a winner.

    • Here’s a thought David:

      You speak of how much work this will require before it becomes auto-pilot. The thing is that this particular property will never be auto-pilot, which is what I am fighting with. This will be a job for ever more…

      Do I want this job? I know it could be a lot of CF, but this is the tug and pull I’m in the middle of.

      Thanks so much for reading!

      • Douglas Dowell on

        I believe self-managing this by hiring a property manager would be a worthwhile compromise. my experience with class D/C tenants has an extra intensive. a high drama Factor no doubt.
        personally I would still pull the trigger.

        • Douglas Dowell on

          l am not a fan of property management companys….once you get the business down at least.

        • I just don’t know if the money is wroth the headache. Like you, Douglas, I don’t believe in property managers (you will soon find out that this does not endear a lot of folks to you on BP). In fact, this is a good litmus test – if I wouldn’t manage it myself, I shouldn’t buy it…

          Thanks for taking the time Douglas!

  24. A question regarding risk overall, since I tend to use bank financing and am not involved with seller financing. If this deal breaks poorly and you walk away and default on the seller’s paper, does that hurt your ability to get additional seller financing for future deals? It’s a consideration since your strategy involves 100% financing generally, right?

    …man, I need to register on the forums.

    • Yes – you should register on the forums.

      As to your question – not performing always reflects badly on one’s credibility. When I say “walk away” I never mean braking the contract. There are going to be stipulation, clauses, and options as part of the contract itself to enable me to walk without breaking my word. We are all big boys and everyone needs to be informed of all possibilities up-front…

      Check out my website if you haven’t yet 🙂 Thanks for the comment!

  25. Almost everything I would have said has been said but a couple more comments. You can invest for a big payoff by buying and forcing “appreciation” – I put that in quotes because there is no appreciation in multi-family compared to SFRs. You force appreciation by increasing rents, occupancy, decreasing expenses, adding income streams, etc. Just because you don’t foresee increasing rents – you have other options – rent vacant units, add a card operated laundry, vending etc., review the staffing – I’m betting it’s a residential manager plus maintenance people rather than all “managers” – but whatever.
    Assuming your company will be changed to your company as the owner/manager, you’ll be letting the current people go and rehiring them – make them justify their worth before you do. The manager should have specific expectations – a weekly report on move-ins/outs, evictions, late pays etc. and a monthly report showing cash flow. If they can’t do that, then find someone who can and will. Your wife (or you) should be managing the managers not the property.
    To differentiate the complex, you can fence it and add lights to make it more secure, offer the tenants a security system by giving them flyers when they rent (simplisafe and frontpointsecurity are 2 inexpensive options – maybe $15 a month the tenant can add on his/her own) – it probably wouldn’t take much to beat out your competitors. I know a guy who buys vacant low income units in TN – he has the concrete floors finished and does not install carpet or any other floor coverings – zero maintenance, easy to clean etc., and in a weird sort of way – chic. If the property doesn’t have a laundry, he adds it – converting a unit to a laundry if necessary – he remembers growing up in low income housing and noting that many low income people don’t have a car and without a laundry they have to haul it by bus. The laundry makes a difference to tenants at this level.
    $8k a month before you do any work? If you don’t take it, I’d think you’re crazy. Most of the deals I look at aren’t deals at all – the numbers are fake, and the returns negative – but that’s CA for you.

    • LOL Mary –

      Lots of valid ideas. This is certainly going to be a very difficult decision if I can get all of the terms that I would need. For now, we are quite a ways apart. $8,000/month is the level at which this makes sense – we are not near that yet 🙂

      Thanks so much for taking the time to read and comment Mary!

  26. Jason Minnich on


    Wow, sounds like a great situation to be in, I’ve some some fun problems in my current house that I’ll ring you later on but its because of them that I’m going to point a few things out.

    So when you say you are outside of your comfort zone, I really see that, I get what you are saying, but I would caution you that you might not even be considering the unknown unknowns. So if I were to ask you how much it costs to re-roof, or replace the HVAC on your 10plex, I bet you have those numbers close or at least know who to go to in order to get them. What if I asked you on this 80 unit deal? For example, I do SFR, I know how much most things cost and I’m soon going to find out how much a new bathroom runs, but if you were to ask me how to scale that I would have no idea, and it would take a lot of research to figure that out. I would also bet that it would factor into your cash flow significantly.

    My recommendation, do the deal but get a partner. Scratch that, go to the competition. Scout out what similar places look like, the closer in comp the better, sit down with management, the workers, talk it out, figure out what comes up in these types of units, and what those things cost. Then if you feel comfortable doing it on your own, triple check the numbers, and get all the inspections and background checks done, and reconsider what you are doing (sadly I can see that costing a pretty penny before you even sign on the line). The other alternative is go to the companies that aready run these type of units and ask them if they would like to partner. Then they aren’t competing with you, they are working with you. You can share MX personnel, have a centralized accounting etc, leverage all of their assets and split the profits. You know your thing, part of that is finding deals, and part of that is making them happen, use your skills like they should and then work with a partner that knows how to deal in this market area to get the job done.

    If you just were to do it on your own, I would suggest walking away, there are too many potential risks, but if you have a partner that knows the market, knows the risks, and is willing to split the profit for an appropriate distribution of the work, go for it!

    Good luck my friend!

    • Listen here Jason – in lieu of “lecturing” me like this, why don’t you get up on that Suzuki and ride for an hour, take a look at the thing with me, visit with my family, have a cup of tea, and then we’ll talk – ha? What – do I have to come get you myself?

      Seriously!!! Some time soon – I ain’t getting any younger

  27. Ben,
    I can share with you my experience in a very similar situation. I had the opportunity to purchase units in a dubious area that had (at least on paper) cash flow of close to $8000 per month. Long story short, I purchased the units (20 units). I made some money, but not really enough to justify my time and aggravation. The $8000 cash flow quickly declined once tenants became delinquent and eviction fees started to add up. Was hard to get section 8 when they can take their voucher across the street and get a single family. In the meantime, you still have to spend money on monthly repairs (you will have 80 re-fridges, 80 stoves, 80 A/C’s, at least 80 toilets, AND 80 roofs). I wouldn’t tell you not to do it. I made some money on my units and it was certainly an education! Just expect to make substantially less than the $8000 you have forecast ed (my 8k realistically turned into about 2k per month.). Also, 80 units will be a full time job, so keep that in mind. I definitely wouldn’t do it if it wasn’t close by, so proximity should be important in your decision making. I eventually sold my units and just added a few single families to my portfolio and I make the same money with far less aggravation. Now I have more time on my hand… I can read and reply to real estate blogs on Bigger Pockets 🙂

    Good luck with whatever direction you take…..and please keep us posted.

  28. Jon Petersen on

    Upthread you said “This deal is well outside of my parameters …”
    That’s where I would get off this train.

    Aside — I’m new to REI and I’m learning a ton from insights from you and the other experienced folks here at BP. I genuinely appreciate what your willingness to share.

    • Hey Jon!

      Partially this deal is lacking in some parameters. But partially, it is simply outside of my comfort zone. One should be an issue, the other should cause growth! What I am trying to do is to isolate the two, and make the deal so bullet-proof that I will feel good getting-in. Don’t know if that makes sense…

      And you are so welcome Jon – thank you!

  29. Hi Ben Leybovich

    I have been following your post since the BP podcast and your financial thoughts are things that clarify so many things for me.

    Now speaking of the 80 units I think that you should press the trigger because as Kiyosaki, Carnegie, Rockefeller, and others big players in the industrial world had said it: sometimes one have to go out of your comfortable zone to get to the next level and, with that kind of thought, I always say: one need to a step of faith of course is important is the keep learning in the process.

    Sometimes the majority of people take those thoughts and do CRAZY stuff or do really intelligent things but without guaranties or ensures. On the other hand, you have the background of all the RE investments, negotiations, contacts, BP, etc that can help you or give you advise. In addition, and because this is your first BIG MF as Jason Minnich said, look for a partner who can teach you or you can relay to learn by for the end you can create your system and manage your managers.

    Furthermore, I know that you cannot disclose anything because the deal is in progress but, as you, the numbers are really important to me and may be because I am a newbie but I can’t see how you will obtain 8K/month with a 0% down? What is $100/door but why I am asking you this? Is because you will pay to the seller a big amount of money for the seller financing or I wrong?, I know that this could sound like really basic thing but remember that I don’t lives in US and I don’t know how exactly that works.

    P.D: sorry if my writing isn’t the best bit I still learning my English and my weak part of it is the writing. May be is for that reason that I could not make any deal when I was leaving in Boston or trying the “virtual wholesaling”.

    • Ahernandez – thank you for the kind words and for your thoughts here. You are doing quite well with your English.

      I buy property for many reasons of which Cash Flow is only one. This particular deal will not answer to the call of duty in several of my criteria, which is why it has to be an absolute monster of a good Cash Flow deal – period.

      I do not buy anything under $100/door in a multi-family situation. That’s not too much to ask. I feel that with the right terms I can get it here. This is my line in the sand, so to speak.

      My hesitation is not so much from the lack of knowledge, although I don’t know what I don’t know. Even so, it is precisely due to my lack of knowledge and awareness of what it is that I hesitate on this deal.
      I too believe very much that success and progress do not live inside our comfort zones, but I will tell you what my dear mentor has told me and continues to tell me:

      Stepping stones and stumbling blocks tend to look alike…never forget this Ahernandez!!!

      I am happy that you find value in my thoughts.

  30. It sounds like there is something Bob is not telling you. If I was Bob I would keep it if I was retiring. The fact that he wants to get rid of it sounds suspicious.

    • Haha Which males Bob no different from any other seller, and makes this deal no different from any other deal…

      Hey Nick – haven’t seen you here in a while. I appreciate you stopping in!

      Your job as a buyer of real estate amounts to 3 steps:

      1. Assume everything you are told is either false or incomplete.
      2. Find out the real truth.
      3. Determine if the circumstance is rectifiable and economically feasible.
      4. Act – one way or the other…

      If you are looking for a seller without a problem which they will want to hide – you will be looking, and nlooking, and looking, and never do a deal that makes sence. Real Estate is not about property – it is about people; more specifically solving people’s problems.

      It could be that the problems in this deal are structurally unsolvable, and if that’s the case I walk. However, it could be that the owner just doesn’t want to work as hard as would be necessary – then it’s a deal.

      I get the feeling that you have it in your mind that Due-Diligence is about avoiding problems. Just the opposite my friend, it is about finding problems, using those problems as leverage in the deal, and fixing those problems.

      Nick – thanks very much for posting. Thanks also for giving me content for yet another blog post 🙂

      • I’m not necessarily talking about avoiding problems. I understand there is always risk and the only way to make risk smaller is by understanding. I don’t mean to sound like an idiot I’m still a noob at REI.

        • Nick,

          Most newbies do sound like fools, I id as well. In fact, I’ll tell you something –

          When I started out, I went to speak with a number of attorneys and CPAs. Most laughed, not to my face ,of course, but I could tell.

          The reason I’ve been with the same attorney and CPA for years is because they saw talent in me, as stupid as I was in the beginning, and they didn’t laugh – they nurtured me and still do. They’ve become friends and confidants…

          The point is, Nick, there is no such thing as noob who doesn’t sound dumb. You take the punches and learn here on BP, and you won’t have to look stupid when talking to sellers and professionals out there Nick.

          BTW I tried to call you and couldn’t get through. Give me a jingle some time…

        • You crack me up Ben. Sorry I didn’t answer my phone I suspended my service until I get back. I’m down range right now.

  31. Ben
    I’m not sure how much you have discussed with the seller, but I haven’t seen in any of the comments thus far. “Option” the property with right to purchase based on the terms negotiated after you see how much income it actually produces after your expenses. This will give you more concrete numbers that you don’t have to take Bobs word for it (even if he is being honest)
    Sure this means you & your wife & ‘Bob’ will hold hands for a year or so, but I think it sounds like that’s what you will do if he holds the paper any way.
    I don’t deal much in large multi-family, but when going into un-chartered territory I always ‘test drive’ the property with ‘options’. Control the property with an option, master lease from ‘Bob’ get your cash flow for the negotiated terms in your lease and if you like the way it turns out over the next year or so (option/ lease period) then exercise your option terms, and then let ‘Bob’ hold the paper. And if you don’t like the way it’s going, still get your cash flow during your (option / lease period) and then simply walk because it didn’t perform up to what you thought.

    • Hey Lee – thanks for taking the time!

      Lee – you are a pretty sharp cookie indeed my friend. Yes, there will absolutely be an Option involved – I am surprised no one called it before you. Not only will there be an option, but this deal, if it works, will be structured as several deals. I didn’t get into any of that in this article for obvious reasons…

      Good for you to notice Lee 🙂 Thanks for reading and taking the time to comment!

  32. Larry Weingarten on

    Hello Ben: You said “I will be forced to do the absolute minimum in terms of repairs and upgrades that I could get away with because the market valuation will not support either the higher rents or higher values – whatever money I put-in, I will loose in terms of equity. And those rents are what they are, and will never be anything but.” After reading everything here, It still isn’t clear to me why this is so. Is it impossible to fix/modernize units as they become vacant and inch up rents? Are the existing rents already higher than the local area? I’d think valuation was affected by income, which you can have an effect on. I may be only pointing out what “feels” off about your premise, but I’ve had good luck getting rents in the higher end of the range by making units a little better than the norm.

    I believe that that if things are confusing, it is most likely because you don’t really have all of the necessary information. It also requires good troubleshooting skills! Anyway, it’s nice to see the many quality comments that have been posted to help you solve this dilemma. Do let us know as you can how it’s progressing!

    • Hey Larry – thanks so much for your comment!

      Rents may be able to go up very, very marginally – not enough to build a strategy around. With what this complex is, where it is, and what market it is in, this deal is what it is. not be able to change the character of the physical property enough to make a difference. I do that with other buildings, but here it is simply not going to be an option.

      This deal is all about terms and present cash flow. Trust me 🙂 Let me see if I can explain this a bit:

      You could buy a house in Detroit for $100 right about now. You could then spend $20,000 renovating it wonderfully. In the end, though, this is still a $100 house. Why – because people willing to buy a house in Detroit right now won’t pay you any more for it. You see – it’s the marketplace, not the house.

      Same goes for income-producing RE, only here we are talking rents. People who want to live in this building simply will not pay substantially more to be there than what they already do – doesn’t matter how nice I make it.


      Thanks so much for your comment Larry!

      • Andy Teasley on

        OK Ben,
        I think I’ve found a way to help you on this, you know all the people who were buying the freebie REO houses in the last few years right? Have you noticed that some of them are moping around now saying ‘there’s nothing to buy’ and others of us have moved into short sales and seller direct purchasing. I seem to hear that you are stuck in your own rut, buy an underperforming project fancy it up and increase cashflows, that is what you know works right?

        Maybe you need to think outside the box a little more, talk to some successful low end landlords and learn their tricks. I will share with you one I took from Shawn Watkins of Investor Workshops in Orange CA. We get an extra 10 to 15% rent on our low end rentals using one simple technique, we don’t charge a deposit. I know it sounds crazy but when you have a “bad” tenant, how often do you have enough in the deposit to cover lost rents and damage? The answer for me is never. When you have a good tenant and you get the unit back “rent ready” how much of the deposit do you keep and how large a check must you write?

        By training our tenants from day one we actually get tenants who take better care of our units and all of the “middle ground “type tenants, you know the “the lanlord will just take that damaged ********* out of the deposit” type know they must pay out of their pockets instead and they give us back much better units.

        Obviously the bad tenants still cost us cash but the good tenants don’t cost us cash and the OK tenants don’t cost us cash and the extra 10-15% in monthly income we get to keep.

        That is only one way you might get an extra 15-20% on your bottom line.


        • Andy – perhaps you are right.

          This may, just may end up being a deal for me, but most of the value in this deal will be in the financing terms.

          It’s just that I’ve lived my investing life up to this point in a way whereby I don’t want to ask anyone to live in a place that I wouldn’t be comfortable in myself/ I recognize that there is the other side to this coin, but thus far I haven’t wanted to step over that line. The only impetus strong enough for me are the terms, and I am not talking interest rate and down-payment – much more creative terms than that.

          I have a portfolio right now that anyone would love to own – there is safety in that for me considering that I am a practitioner of higher levels of leverage. It’s going to take this, that, and some of the other for me to speculate…

          I agree with you in principal, though. Thank you so much for commenting!

  33. Ben

    Ill keep this short and sweet, especially considering im pretty much agreeing with what I believe to be your biggest concern. You’ve done very well buying and managing what you know. Personally, I prefer the lower income deals, and I wouldn’t mess with something that I would consider a “nicer” property. Anytime I come across something that wouldn’t fall in line with the other properties I own, I run the numbers on a wholesale or quick flip (theres a market in Dallas for buying a house, getting it rentable and flipping it to another investor who doesn’t want to do the work) and if I cant do either one of those, I tend to walk. Im sure the numbers are great, they tend to be with the lower income deals, but theres a reason for that. Seems like your fully aware of those reasons. I guess that wasn’t all that short… my bad

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