First investment property— discount due to covenant

[Billal J.]

Hey all!

Long-time reader, first-time investor.

Just went to look at a property that came highly recommended to me by my real estate agent. She is the listing agent, property manager, and my aunt. She’s also been an investor for 15 years.

The property is a double. Listed at $210k, the current owner is long-distance and wants out. Why? Because he signed a covenant agreement post Hurricane Katrina. This property is in the greater New Orleans area. He got some sort of grant money from the Louisiana Road Home program by committing to 10 years of low rent. He got some kind of grant for extending it another 10 years.

She recommended I put it an offer for $150k, and he agreed to it. So now I looked at the property and it looks well kept. One unit is 3BR/2Bath, second is 2BR/1Bath.

Combined they rent for $1100. Yikes. With the rent scale, I can up it to around $1300. For 3.5 years, that is a very disappointing deal. But it becomes interesting when covenant expires and I can get $1800/mo (assuming average rent doesn’t increase in those 3.5yrs).

So, my question is… is this a deal worth taking? The numbers become a “grand slam” after 3.5 years, but leaves me at next to no cash flow in the interim.

$210k is a fair amount for the property. Maybe a touch high for the area. But getting it at $150k…

Let me know your thoughts please!
Much appreciated!!