purchasing a 100% owner financed 12 unit. Trouble pulling trigger

[DJ Cummins]

Hello Everyone,

I have a contact that I made a couple of  years ago, and he has offered to sell me a 12 unit apartment building, with 100% owner financing.  No money down.  He has several hundred units and he is looking to start downsizing for retirement.  No money down seems like a tremendous opportunity.  Plus my figures estimate that I would be getting the property for 50-100k below market value.  We currently own a 4 plex, and 2 sfr's. so this would be a big step up for us.

My issue(s).  this is in a C to C- area.  Gross rent is $565 per unit, $6780 per month.  Taxes are very high, $13,000 per year(I believe it.  I have a 4 unit that is 4k in this town).  Flood insurance is required because this is near a levy on the Mississippi river.  Insurance is $12,500 per year currently. One unit currently needs about 10k of work to be rented out, it is mid renovation.  Property was built in 2003-ish.

Gross year rent = $6780

Taxes                   - $1083

Insurance           -  $1042

Wat/Sew/Trash  - $350

Est Mtg Pmt        - $2,100

cap ex/maint/vac- $1800

Cash Flow =        $405.00.

This is not a large amount of cash flow for a 12 unit building.  I feel like the risk factor is fairly high with this deal.  I love that we would be given instant equity with $0 down, but I just don't know if the risk is worth it.

Any Advice?

Thanks,
DJ

[Thomas S.]

It is not a deal worth investing in, margins are way too thin to take the risk unless you have room to increase rents considerably immediately. If not then the zero down and instant equity are of next to no value.

Unless you have numbers you are not revealing this is not a good investment.