36 unit in suburb of Columbus, Oh

[Bill McCartney]

First, a little about me. My wife and I have had a few really good years with our business so I took the profits and spent the last year building a small portfolio of 21 units in Columbus and Newark, OH. We have quite a few SFH, a couple of duplexes, a quad and 2 weeks ago closed on my first 6 unit. Most of the units are C's but have a few B's. I didn't really know what I was doing so I started out using all cash thinking it was the safest route but recently started using both owner and bank financing to leverage the cash I have left. I have really only bought home run's. Earlier this year, I bought a foreclosure for 50K for cash, put 2K into it, then it appraised for 100K so right now I'm doing a cash out refi and getting back 70K. Oh, and it rents for $1500/mo!

That is how most of my portfolio is. Not including maintenance (which I mostly do myself and has been averaging just $175 per month) or capex, anything over 46% occupancy covers all of my costs. I read somewhere on here that not including management costs, not paying out for maintenance and not including capex and calling what you have left profit is not really profit. Got it but not sure what else to call it! My wife has been managing our business and now all of my time goes to real estate so if you want to call it a job, I'm ok with that. The longest I've had a unit sit vacant is 10 days. I take good care of the units and the word is out. I have a waiting list from current tenants' friends and relatives.

At any rate, it takes A LOT of time to find those deals. I've probably looked at close to 250 deals in the last year. And I bought up every one that fit the criteria I was looking for. The good deals have been much harder to come by in the last few months and I think finding 21 more units like the ones I have will take a lot of effort. 42 more would take forever.

Which finally brings me to the reason for my post. I told you what my strategy has been to date. This is quite a bit different and so I'm looking for some advice.

The off market deal:

36 units asking $825,000. 2 buildings with 18 units each. Built in the early 70's. All brick. Tenants pay all utilities. Radiant electric heat in floors in one building and gas furnaces in another. All single pane, older windows. Roofs 8 years old. Cast iron plumbing. One building is gas and as I understood it, is concrete floors and walls as firebarrier. I imagine this would be a pain when it comes to plumbing repairs. The other building is electric and is stick built.

23 1 BR units averaged @ $397 per month.

1 1 BR unit converted into laundry @ $0 per month.

12 2 BR units averaged @ $427 per month.

Gross $14,255

Expenses (owner claimed) $2000 - I will be managing the building myself and doing most of the maintenance.

Taxes $916

Insurance $566

Net $10,773

Mortgage $5536

Cash flow $5237

Owner is willing to carry financing. 10% down. 5 years at 6.5% then jumps to 8% in the hope I'll get traditional financing within that time.

The building is probably the lowest rents in the entire city (I wouldn't call it a town, but it's a pretty small city). The building manager told me this was because it wasn't a very nice area and attracting higher paying tenants was a problem. As it turns out, it has been poorly managed for quite a while. They have the lowest rent and attract the type of tenant that can only afford the lowest rent. Which in turn drives out the decent tenants so they have to further reduce rent to attract more low paying tenants. The good news is they have very few vacancies. The bad news is when I started asking around, most people with options would prefer not to live there because management "either doesn't see or doesn't want to see" what goes on there. The area is pretty nice, however. To me, I see that as opportunity. If I run out the drugs, low lifes and trouble makers and turn around the reputation, in a few years I can get rents to where they should be which would add about $4000 per month in revenue.

So there's the deal. This would be a big step for me. My gut says jump in with both feet like I always do. But there's a part of my brain that is making me nervous (or could be my friends and family who all work real jobs and don't have a penny saved that want to give me investment advice....) It would be nice because I'd have 36 units in one place. But that is putting a lot of eggs in one basket. And if I do this deal, it will probably be the last one I do for a while as it will eat up a lot of the cash I have left.

What do you guys think? Is this a deal you'd do? Thanks in advance!