Is Buying Half a Building a Half-Baked Idea?

Question

So, here's the deal:

There's a building in my neighborhood that I pass by everyday. It is an 8-plex and has been visibly abandoned (but not run-down) for quite some time. I've always thought what a cash cow it would be to purchase it and rent the units out (Each unit is a 2-story 2/1 townhome, essentially).

Well, lo and behold, I noticed that it's finally for sale!! ...except not entirely. Due to zoning, the single building actually has two addresses. Four units belong to one "side" and four to the other. Only 4 units are being sold (currently) even though one owner owns both sides.

The price is reasonable, even though there will be some minimal drywall repair/paint and replace A/C units that would need to be done to make the units rent-ready.

Question is, is it a good deal or could it just be taking a huge risk for a headache down the road? (I can only afford one side anyway, so it's not like I could just "double" my offer and try to buy both "units").

Pros are that it would cash-flow magnificently. Good layout/space. Nice neighborhood.

Cons I see is that the owner wants someone else to fix up half the property, to improve/raise the value and then sell the other half at an inflated rate (worst-case to a different buyer) or, even if I was able to buy the second half, it would cut into profits for the value I already gave to it; Or that they'll just leave it vacant, making renters wary of living next to an "abandoned" apartment.

It's also listed as a commerical property, so I know taxes/insurance would be higher than on a smaller multi-family. Pro/Con? Who knows.

I am in no rush to move forward on this - I'd need to save up for a down-payment anyway... Just wanted to get some opinions on whether this may be a good idea, or unless I can buy "100%" of a property, I should just pass it by.

Thanks!!

Jeff S. · Answer

Bill Gulley, thanks for explaining common wall agreement.  I didn't see your original post until after I had posted :)

John Brackett · Answer

I think Bill's comments are spot on - additionally include in your offer an option (at minimum first right of refusal on other parcel/unit).  I think you have a good value proposition to seller: I will spend my money and time increasing value of both units (- only offer to paint exterior of his/plus landscaping).  In exchange - you get your asking price plus - option to.......

Bill Gulley · Answer

Good points Jeff, a common wall agreement generally covers common areas like grounds, roof, access, repairs required that are common to the building, simply referred to as a common wall agreement, so check on the agreement being inclusive of other issues.

Is an interesting find, post up the details :)

Jeff S. · Answer

Hey David Elsea,  this is a really cool find! There are a lot of unknowns though.  I've seen this work and I've also seen it fail horribly.  It worked when both owners were actively managing their respective sides of the property.  It didn't work when one owner did not either actively manage or communicate with the other owner. examples being:  pest control, roof repairs, and other "shared problems".  One solution was to have an HOA (obviously this was a larger operations than an 8-plex), but it was perpetually under-funded.

Can you provide some additional details?  Estimated rents, proposed purchase price, etc.  Since you said it's not currently being rented.  I would be interested to hear what is motivating the seller to only list half the property too.  Who knows, maybe you could get some seller financing since its a non-performer as-is.  Ultimately I would want to have control over both sides- it would be the best insurance against the risks you referenced.

Bill Gulley · Answer

This is more common in commercial strips but is not odd. It's much like a patio home. You need to make sure there is a common wall agreement filed on the properties and that there is a fire wall that runs all the way up to the roof for that common wall. Don't buy without these issues being addressed, IMO. Financing could be difficult. See if seller financing is an option on a long term basis. Good luck! :)