to buy or not to buy?

Question

Someone asked me to buy their building, I figured I'd gather some of your thoughts.

It's 4 large storage units (each unit is about 22x40 and 16 ft. high), with 2 apartments above the storage units (a two bedroom and a 3 bedroom). All units have gas, water and electric and are all on separate meters. It's about 10 years old.

Price: $200,000 (He said he paid $30k for the lot, $20k to run utilities, $170k to build the building so overall he paid about $220k for it).

Land contract with $0 down for 10 years at 5% and payments about $2,121 a month. Taxes and insurance are a little under $250 a month. Currently he has the storage units rented for $225 a month and the apartments rented for $400 a month (total of $1700).

I expect to be able to raise the rents to $2200.

As is it's horrible cash flow and income for this purchase price (I bought a triplex this year for $19k that brings in over $1400 a month). But since he's financing it... if I keep it rented and people paying, it's as if I just have to pay taxes and insurance on the building for 10 years and he's giving it to me for free. It's hard to turn down a nice asset that someone else is paying for.

Troy Young · Answer

I'll have ownership, well my business/LLC will, which also helps get around some of the annoyances of the new (two year old) law making it harder to buy and sell via land contracts. I was just saying it would be like a free building in 10 years if I just pay the taxes and ins. on it for that time.  I'm not sure if I'll take it or not, probably won't, but I figured I'd post to see what people thought. It seems like most people just look for cash flow but there is usually more than one way to look at a deal.  I started off needing cash flow but now I'm taking a lot of deals with negative cash flow (for the short term), if I don't have to use my own money and will be gaining equity quickly. Most of the deals I do are under $50k and my negative cash flow is only for a year or two before I pay it off and then my cash flow is great on those.

Steve Vaughan · Answer

I'd probably do it if it wasn't on a dang no ownership for 10 years Land Contract.  I think in 20-yr horizons, though.

If I got title through a note and deed of trust / mortgage or TIC I'd be okay without cash-flow. It's no money down (other than enough consideration to make it legal) to you and you'll have a paid for asset in 10 years.  You're working (management and upkeep) for equity.  I like it @Troy Young!

Troy Young · Answer

Thanks for the input. I'm not seeing many on here (other posts included) that like any deals that don't cash flow right away.

Andrew Syrios · Answer

I don't know anything about storage units, but I wouldn't buy anything that didn't cash flow unless it had a lot of equity. And in that case, I would probably flip it. What do you think the market value of this property is? If you aren't getting any equity, I would walk regardless of the financing available.