Investing in Property w/ Great Numbers BUT NONPAYING TENANTS

[Daniel J Welsh]

Thoughts?

I have a local property 24 Unit Apartment for about 1.7 million. 

C class property in higher crime area. 

6,439 cash flow/month

268 cash flow per unit

14% cash on cash

9% cap rate

GRM 6.4

It’s 100% occupied, however the catch is 50% of the tenants are not paying at the current time. I’m gonna collect 2 years of rental payment history, hoping this is just covid, but would you ever go into a deal like this knowing you either need to evict people or help them get credit? The numbers just seem too good.  Would love guidance on this or if anyone wants to join the venture?!

[Suzanne Player]

Getting verification of rent is important, if they can’t prove it, assume they didn’t receive it.  Some of the tenants that are now current may have been late in the past 2 years as well.
Are there evictions in progress?  Sometimes you are buying an eviction (or 12, as the case may be here).  Do you have the money to evict 12 tenants given the legal fees?  I don’t know where this property is - how easy is it to evict non paying tenants in your jurisdiction?  You need to talk to your attorney about the realities of the process, it can take more than 6 months in some places.
There will also be a need to repair the damage they do if they are angry about being evicted, and some time for the units to be vacant until you have new tenants.  Also, what’s the rental market in this area once you have 12 units for rent?  C class properties are not easy to manage according to a lot of landlords.

But if you can solve these problems, there may be a great payout for you - this is probably a very motivated seller, you should have a lot of bargaining power.