28 Units Need A LOT of repairs

[Abad Marroquin]

I have 14 Duplexes under contract in Georgia for $450K. 

My analysis shows a $500 Negative cash flow with the rent roll I was provided using 7% for vacancies, 7% for repair and maintenance, 7% Capital Expenditure, 10% for management. $400 a month for landscaping, property taxes and insurance.

The seller had originally said that none of the tenants had signed a lease and none of them had paid any deposit. 

Today I walked through 24 of the 28 units and these is what I found:

22 of 24 tenants I spoke with said they signed a lease and paid a deposit of one month of rent. Owner does not pay any utilities and does not provide appliances or cooling units...

There is LOT of deferred maintenance.

12 Units are in a better part of town. The roof looked new, probably 3 to 5 years. The interior of the units need new flooring throughout, new paint, some leaking in kitchens and bathrooms. Most kitchens don't have cabinets. 

16 Units are in a much less desirable part of town. I spoke with a local property manager and she said that she would prefer not to manage properties in that section of the city. She does not feel safe there, and some of her contractors who have worked there during the day they tell her that they are afraid that their tools will be stolen while they're working...Many abandoned houses in very bad shape...

The roof need to be replaced within a year in 3 duplexes and the rest withing the next 3 years. Most units need new flooring, and many reported leaking problems in kitchen and bathrooms. They all said they have reported the problem but have not heard from the management.

Rent goes from as low as $195.00 to $375.00. A local property manager I spoke with said these units should rent for $425.00 I would be cash flowing about $3,000 a month when rents are at $425 a month. And of course after I update all units... 

I have some concerns about the potential in this deal. The population of this city has not grown or declined in the last 7 years... Only 120 jobs have been created in 2017 for a city of 34k people... Unemployment is 5.5%.  My bank said they could include the repairs in the loan. I still need to come up with 20% of the repair. 

I am planning on negotiating the repairs needed...

Please any advice or heads up is appreciate!