Leap or Run

[Nom M.]

Hi!

Well, I closed on my first rental, and rented it a week later. Tenants are thrilled with the house, and I'm thrilled to have a full deposit and 1st months rent! It will cash flow $550 a month.

In the search for my first property, I also found a 7 unit (3plex and 4plex) that a local bank foreclosed on. They want 190k and will not budge on price.

The bad - It needs work. All units need flooring/kitchens. Both buildings need roofs.

One building needs siding & Windows.

All units full, but tenants are not great - handful of them have past evictions, most have pets. I guess around 50k to really bring it and all units up to a good/great condition.

The Good -

The bank is willing to finance 100% of the purchase (190k) at 4.5% for 30 years fixed - no balloon. They will cover missing deposits if I have to pay for the current tenants.

The so-so

They want me to escrow money for the exterior repairs around 20k-30k (Exact amount TBD but I have the funds), and complete repairs in 4-6 months. (We are still working details out here)

Gross Rent is $4000, and with the financing it will cash flow about $1500 a month. I've factored in Taxes, Insurance, Cleaning, Snow/Lawn, Turn over.

I've got the money to fix it, and my 8-5 can supply additional funds to turn it around if needed.

Knowing what you know, would you jump on this deal?

Nom

[Dale Osborn]

You need to work with them on the escrow of funds. We had an escrow once when we had apartments and were promised to be reimbursed from our own escrow as soon as repairs were made. Instead in the dinky print they got to hang on to a 2 year escrow amount so could not reimburse us till five years later. It was a pain - once they have control of your funds, it is difficult to get it back. Sign something to the effect that you will do certain repairs as units go vacant or tenants are evicted and units get rehabbed for a higher rent amount. You retain control of the escrow amount or have a third party hold it with the express agreement that as you spend money you will be reimbursed till fund is drained and will not be permanently funded.