Duplexes in Phenix, Alabama - How to really analyze this deal?

Question

So I'm going to Phenix, Alabama this weekend to check on 4 duplexes (vacant)
Requires some cosmetic works, floor, paint, windows and there's a hole in the roof about (3ft by 3ft) for all the units. Sale price right now is about 180,000. I did some research and rent around here is about 476-511. These duplexes are about 1 mile from the college campus. Appears to be a C-->> going toward a B neighborhood (at least that's what the seller said,,of course right?)

I'm trying to get the property owner financed.

Has anybody dealt with something like this and what was your experience like?
The numbers look good but I don't know if this is really a great deal?

What are your take on this Bigger Pockets?

Allen Thomas · Answer

I looked at that one online, but not in person. They would have to come waaayyyyyy down in price for me to be willing to tackle that monster. 0% occupancy in an iffy area AND a ton of reno is needed? No sir...

Mil Sanghvi · Answer

I have a few properties in Phenix City, AL and Columbus, GA. Based on the information I'm willing to bet the properties are in south Phenix City which is an area I would stay away from.

Rent: $500 x 8 units = $48,000 a year

35% expenses and a 12% cap rate gives you 260K. If you're paying 180k, that doesn't leave you much room to rehab 8 units.

Let me know how things work out.

Blair Poelman · Answer

I've done several SFR's in Alabama, mostly Birmingham area, and a medium sized apartment complex.

Had excellent success with the SFR's. The apartment was just okay.  Not a home run, but didn't completely strike out.  Have used a few different managers, most good, 1 bad (really, really bad).

So here's the point:    I tend to enjoy dups, tris, and quads, but all the managers I worked with declined to manage any multi fam other than those with 15 or more units.  Something about Birmingham that isn't small-multi friendly.  Don't know what it is because I never bought any (lack of a good manager, and I didn't need another guy to keep tabs on), but my team wouldn't do it.

Again, that's in Birmingham, quite a ways from Phenix and probably far enough away to be considered a different market.  I would advise that you speak with some locals at the REIA and see what their take is in that market.

Samuel DeMass · Answer

@Luan Truong,

Fantastic!  I really like Albuquerque, although I admittedly am new to the local market.

What kind of properties are you looking at in Albuquerque?

I have a duplex near a university, but it lies on the outskirts of the heart of the university area.  I tend to think that the high demand from students pushes out a ring of professionals geographically speaking around the core of the city.  In essence I benefit from the higher demand from students wanting to be close, but don't have to deal with the difficulties associated with the ridiculous National Lampoon (movie reference) scenes that college students tend to attract in my units.  However, in an college environment the demand is brutal and cyclical.

If your property manager is worth his or her salt, they'll understand the ebbs and flows of the university demand.  It feel that it is prudent to align your lease termination just prior to the start of the next fall semester.  That being said, my property managers just got done re-signing leases for next year (August 2015 through August 2016).  The demand is that elastic.

Good luck, i look forward to seeing what you think!

-Sam

Luan Truong · Answer

Thanks for the advice Sam! And you're in Albuquerque. That's a beautiful city. Planning to buy some real estate in Albuquerque myself some time in the near future!

So i'm heading up there with a contractor to go through all of the properties and get an estimate. I will head there this Saturday to check it out.I don't know about the rent, I use rentometer and Neighborhoodscout.com to get a feel of the rent in the area. It is near a university so I don't know if that's  a good thing or a bad thing. I read somewhere that it's a good thing, but then other investors said it's bad due to the wear and tear. So kind of in limbo since I've never dealt with this situation before.

As far as getting rent and managing the property. I'll have a property manager there to manage it for me and finding tenants. I got the owner to agree to an owner finance deal (30 years) no prepayment penalty, no balloon payments. Monthly would roughly be 700-800. Thanks for the tip about the phantom craigslist ad. I'll try it! Keep you posted.

Samuel DeMass · Answer

@Luan Truong,

Without knowing the full scope of the details, I would be cautious with the deal.  On the surface it looks like the numbers might hold, but have you dug in and run the numbers?  I've admittedly never done anything that would qualify as an extensive rehab.  However, I have looked at properties that needed work and my primary concern is always the ambiguous 'how much will that cost to fix'?  I'd look at getting contractors to take a good look at the property and give $ amount quotes for the specific scope of work that needs to be accomplished.  I'm sure others have more experience and advice on this front.

I think the other thing that raises an eyebrow for me is the daunting task of filling 8 vacancies.  There's a long list of things to consider here to include:

-How long will it take you to get it rented?

-How long can you survive without it being rented?

-Who is going to get it rented for you, assuming your travelling some distance to look at the property.

-How sure are you of your analysis of rent in the local area?

To try to avoid pulling the pin and dropping a grenade on your post here's something I think might alleviate the rent concern:

I heard a technique somewhere, probably from @Brandon Turner, on one of the podcasts about using a phantom craigslist ad to test the waters.  I may or may not have ever done this to test my numbers before moving forward with a deal.  You might be able to get a good feel for the responsiveness to the market at different price points and the volume of response.  This will help you gain a better understanding of the market and what you can reasonably expect to see.

All this said, you can do it.  If you buy it right and have taken precautions where you need to, it could be an incredible opportunity.

Good luck!  Let us know what you decide to do!

-Sam