Buying low-end properties

[K. Mitchell]

I am near Houston. I buy and hold. Will do so for the next 30 years until I retire. I have more than 10 houses here now. Half are SFRs in A/B neighborhoods, half are duplexes in a C neighborhood. They cash flow, but are leveraged at about 80%. So I can't really get more bank financing for a few years until they pay down a bit....

I have a seller who is willing to finance low-end properties in C neighborhoods. He owns about 80 of them and I could probably pick up all of them over the next few years....

They are all in pretty bad shape. He only fixes things as the tenants complain and the minimal to rent them. They need a lot of work to bring them up to the standard that I am used to (and even to Code...), but no one really does this in these parts of the town. All of the houses are like this.

The properties are really inexpensive in that part of town (i.e., like $30K each). They would cash flow about $100 to $200 per door if I factor in minimal repairs and double the management costs with his financing. Also, I could fund a few more repairs myself if needed.

I understand the headache factor. I really worry about the legal/liability issues....

So I was wondering, has anyone had thoughts about this? Is anyone else going after these types of properties as long term buy and holds, and have you had any luck doing so? Do you basically pull the cash flow out for a few years and then fix them or do you just let them ride? Can you share some info on your story/experience?

[Jeff S.]

Can't speak to the liability issues but having bought junkers it can be rewarding if you slowly fix over time. Lots can happen over time to areas and they will either get worse, stay the same or improve. You could almost improve an area with that many houses.

The way I look at it is if you improve them faster than they deteriorate you will end up with a lot of really nice places. The trick is to use the tenants money and at the same time build a cash reserve.