Buy or not help needed - Slumlorded 8-plex opportunity

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Buy or not help needed - Slumlorded 8-plex opportunity

Josh Helfer
Rental Property Investor · Wheeling, WV · Member since 2016 · 4 posts · 0 votes

BP,

I'm as green as green can be but incredibly passionate about learning as much and as fast as I can. While going over potential properties my wife and I came across an 8-plex. Building is 100 years old. Stats to follow, but quick back story. Current owner last appraised at bout 300k. Went on market two years ago, never sold (it's in bad shape from reinvestment/repair neglect). Went back up on the market about 6 months ago, so its sitting at about 190 days on current listing for 180k. We entered escrow at 160k. Upon inspection report inspector rates it at about 2-3 out of 10. Needs new gutters as current box gutters are a mess (est 14k), wood rot expected from that. Mold in basement, exterior wooden staircase needs replaced (1-2k), retaining wall needs replaced(2-3K). AC and one of three furnaces needs replaced (est 8k). That's just what we know, and that's my concern is the unknown with this kind of neglect. The 30k we wanted to invest into it for upgrades to increase rent would go into just making it livable. Recently seller put in new roof, and a 400amp panel in basement, BUT its not wired for metering and would have to be rewired. Owner pays all utilities, which is about 15k a year. Ok, numbers time.

Last appraisal 300k. Current market price: 180k. Escrow at 160k. Ballparked repairs expected ~30k. It's 8 units, with 7 tenants currently living it, 1 about to move out. Last year grossed 57k, but due to mismanagement (all utilities by owner) NOI was about 23k. Due to the inspection, we notified the realtor we'd be using the exiting clause in the contract because repairs are over 1k, and we really don't expect the seller to drop the price 30k to cover these costs. Units rent between 750 and 400, different sizes but most are 700.

So my question, where did I make a mistake if at all, and should I ask the realtor to renegotiate if this place is worth buying? And if I bought at 160k and it gets reappraised (assuming Code passes!) at ~300k, could/should I use that spread in equity to finance repairs and or reinvest in another property?

Thank you BP!

Josh

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  • Kim Younkin
    Real Estate Marketing Professional · Columbus, OH · Member since 2015 · 299 posts · 125 votes
    9y

    Hi, @Josh Helfer. I'm not sure why you would want to start your investing career this way, if in fact this would be your first investment? Do you have a large team of people to help you? You say in the title that it's a "slumlord" property--are we talking guns and drugs here? The work of dealing with all of that -- not simply the physical nature of the property -- is monumental. We helped an investor buy such a property (apt complex) this year and have had to clear out most of the tenants and do similar work to the property with a team of people and it's still an ugly project. Evictions, working with the local police to tighten security, repeated cases of bedbugs as we were moving people out and others in. I think it's great that you're ambitious but want you to realize that this is a PROJECT, and it will last a LONG time. Of course successful projects can make you feel great and after a long time and a lot of work net you some return, but I wanted to give you a real-world example. Good luck!

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  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    9y

    You have taken on a monumental challenge, unlikely you will be able to turn it around and would be best to continue to operate as a D class property. That is where the money is. You are wasting your time if you believe you can change it.

    Even at $160 it is a good investment but you will need to at least double your estimate on expenses to stabilise the property.

    I would try to get maximum financing based on a appraisal and hope to get enough to cover all repairs. This is a common route to take with financing. If you can get 100% financing including covering repairs/upgrades it is a great investment property. Obviously try to renegotiate the price and beat down the seller as far as you can. Ball is in your court if he ever wants to sell this property.

    Do the essentials regarding separate meters, safety items etc. and forget wasting money on cosmetics. 

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  • James Syed
    Real Estate Broker · Mount Olive, IL · Member since 2013 · 1k+ posts · 310 votes
    9y
    Josh Helfer Great post and questions. You don't have to graduate from a single family owner to Multifamily ( in this case 8 unit). Use BP calculators to analyze numbers. Based upon information provided, this deal looks good enough to dig further. I would strongly recommend a licensed property inspector doing inspection so you have something concrete information on repairs, replace items. Ignore last appraisal value, that is irrelevant now. Instead cash flow is more important. Hope it helps.
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  • James Syed
    Real Estate Broker · Mount Olive, IL · Member since 2013 · 1k+ posts · 310 votes
    9y
    Josh Helfer I apologize I missed it that you did have an inspection. So you need 2 things now. ARV Rehab Cost Have you figured out the ARV of this property? Have you contacted a contractor for rehab cost? If yes, how much did they say? I know you said you think $30,000. Hope it helps.
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  • Josh Helfer
    OP
    Rental Property Investor · Wheeling, WV · Member since 2016 · 4 posts · 0 votes
    9y

    First - thank you all for the guidance!!

    @Kim Younkin - the slumlord is the owner, the people living there aren't top notch but 5 of the 7 tenants are actually pleasant. Two of them have been living there 5+ years, one is a handyman himself that does odd things around the place because he actually cares. No drugs/guns, not that bad, just lower income. It's the seller's mindset towards the place that turned it into the "squalor" that the inspector called it.

    @Thomas S. I'm really eager, and I'm aware of my knoweldge base and trying not to be naive about my first purchase so I'm gathering as much information as quickly as I can (and turning to BP!) By running the numbers it's about 160$/door a month net. Inspector was pretty unhappy with the place, but I knew there'd be a good repair cost going in, I just wasn't expecting 30-40k. And I agree with appraisal and cash flow importance, I'd use the appraisal to take equity out for repairs financing.

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