A Good Deal or a Bad Deal ?

Question

I have an 8 unit apartment building under contract in Memphis TN. Property is located in a C-/D+ area but it is .25 miles from an awesome revitalized B area. All units are 2BD / 1 BA.

The Property is currently 100% occupied, all leases were expired between 1 - 3 months ago. Rents are all $300 a month totally $2400 a month. Purchase price is $55,000 and I am still pending the final report to what must be rehabbed. I plan to rehab each unit and raise the rents to $400 within the next 2-3 months.

Using a hard money lender with 12% interest, Interest only payments for 24month. I plan to have this building refinanced with my bank within 12months of the purchase.

Also, I will be using a PM for this.

Thoughts anyone, this is my FIRST deal  ?

Tina Sandoval · Answer

@Jimmy Warr I look forward to meeting you 3/21 you will get a great head start with @Douglas Skipworth workshop - They are the BEST!

Jimmy Warr · Answer

@Alexander Felice Those were my thoughts as well. I am completely a peoples person BUT, I must ensure that my PM is also a "Peoples Person". I am still vetting her but so far I think she will be great. Only time will tell. I soooo up for the challenge ! @Tina Sandoval @Erik Nowacki I was heading to that meeting on Tuesday and had to turn back because of a crises at work ! I WILL be at the meeting next month, so see you there. I am also attending another free workshop this Monday 3/21 with @Douglas Skipworth . I will need all the advice I can get to be successful. I can't wait :-) .

Tina Sandoval · Answer

@Jimmy Warr I just attended the 1st meeting for the Multi Family via MIG and it was full of great advice and ideas! @Erik Nowacki did a outstanding job leading the meeting! Please try and make the next one. I plan on attending each month!

James Wachob · Answer

@Jimmy Warr check out the MemFlips group 1st Monday of each month at Fox Ridge Pizza!

Douglas Skipworth · Answer

@Jimmy Warr,

I completely understand where @Stephen Akindona is coming from.  There is no doubt that you will be signing up for a challenge.

That said, I believe you can make this deal work if you are bound and determined to.

I know you're planning to use professional property management, but you might consider self-management so that you can reduce your cash costs (but, it will cost a lot of your time) and keep your finger on the pulse of the property.  No matter how good of property manager you have they will never be able to watch one property as well as can (as you get more properties they will most likely do a better job than a self manager could).

There's a new MIG focus group for multifamily investors.  You can learn a ton from them.

Overall, I don't see a lot of financial upside potential for you in this deal, but you can definitely learn a tremendous amount from it, which is the best thing you can get.  Plus, purchasing for $55k should give you a margin of safety (that is, you should be able to get out of it at that price if things stay the same).

Best of luck to you!

Derrick Craig · Answer

@Jimmy Warr

If you don't mind me asking where is this property located, I can give you my honest opinion on it after I view property and area, regardless of the rehabs etc trust I have seen worst and purchased worst. But I have also turned properties like this around and I think you may be able to do the same if I think it's the same property I remember seeing.

PM Me

Happy Investing

Alexander Felice · Answer

The numbers look fantastic, but the only question that really needs to be answered is are the $300 tenants going to give you more hassle and overhead than the profit you make. As rent prices increase, so does tenant quality.

$300 rent is literally the lowest rent I've ever seen, be prepared to have the worst tenants you'll ever see ;) Are you up to dealing with these tenants? their problems? These are people who aren't trying to be the best they can, they are trying to set the worlds expectation of them as low as possible. If you have good people skills, there may be a lot of profit here for you.

for 55K I would be up for entertaining the challenge, especially with 100% occupancy.

Jimmy Warr · Answer

@Douglas Skipworth Thanks... I have a full time demanding job, so self managing will not be the best option for me right now. And I competently agree with you about the new MIG group,, I have been in contact with Erik and I plan to make the next meeting..

Again Thank You both for the advice. I have something to do before this deal closes.

Jimmy Warr · Answer

Thanks for your honest feedback @Stephen Akindona

Stephen Akindona · Answer

I can almost assure you that this probably a deal you will want to PASS on. The area is most likely a bad area and with rents being so low you will be dealing with all the issues that come with low rent tenants.

Memphis in general does not have the great multi family investment opportunities that exist in other markets. Also added that this is your first deal I would tell you to run from this, better to buy a single family property in a great area than to take this on.

Just my two cents!

Good luck!

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