First Multi Family walkthrough today

[Josh R.]

Hi BP,

So went and did our first Multi Family walkthrough after reading ALL the BP books as well as david greene's long distance RE investing book and reading that about 3 times over! Learned a lot in the process. First of all, dont believe everything you read on the MLS description. We got there with our RE and turns out the quadplex was actually Section 8 in 2 of the 4 units. We decided not to go in there as this is not our goal. The duplex we went for and walked through , the carpets in one were destroyed and heavy smoke smell inside the unit. This tenant had been there for over 5 years. The other side of the unit had doves that lived in a cage inside the house. It had upgraded flooring downstairs which was a vinyl wood but the carpets again were destroyed. Water heater was replaced this week. Tenant was on month to month. Took a page from Matt faircloth and asked the tenants what there utility bills were as well as would they be willing to pay monthly for a storage unit outside. Elderly gentleman had dementia and was on a month to month lease. The smells that came out of that place as well was gagging to say the least. Pets in both units. Bathrooms were in good condition as well as most of the paint and ceilings. Water spots were in the kitchen ceiling which raised some flags. Septic had been dug up recently as well.

Now to the numbers.

Seller was asking 155k for the duplex. 700$/month for 1 unit, 750$ for the other with upgraded vinyl flooring. Garbage and landscaping is handled by the landlord. This is a quiet area just outside Selma , NC which is about 30 min south of Raleigh, NC. I would have to put about 20k in repairs. 

I say all that to say this, if I do repairs to these units but have the same tenants, I would be inheriting the same problems that are currently in place. Dirty, smelly living conditions. Its not that it was the worst, but that would mean the carpets would have to be replaced all the sooner as well as repaint every so often as well. Roof will need another layer of shingles within the next 5 as well. Taking all that into consideration, coming in a lot lower is the only thing that makes this property worth the taking. Has a lot of potential at the cost of some upgrades and possible rent raise. Worth it? Not worth it? I know the numbers wont lie, but is this C class housing worth the investment and potential headaches to even offer on? 

[Chris Martin]

Not sure I'd call them 'C' properties, assuming the quad that I see on MLS is the one you were talking about (it was listed the same day as the duplex, so probably the same owner.) If you buy the duplex at $100K I think you got yourself a deal. That's well below replacement costs and for a less than 15 yo duplex would be reasonable over the long term.

You should have looked at the quad if only for the experience. I've been in the business a long time, and can say with confidence I embrace the opportunity to see something (like land or property in general) I've not seen before, especially when I am already there (physically there) and the time involvement is very low (10-15 minutes, maybe less). It's like tasting new food. As I get older I tend to try it before saying 'no thanks'. Well, sometimes;)