First time investor! Need advice on an 8 unit historical building

[Cole Johnson]

Hi Everyone!

I'm looking to buy an apartment building in my home town (which is only 650 people) . I currently live about an hour away from it and have some first time investor questions. 

First of all the building is $65k listing price! Right now it has 5 units of the 8 rented out totaling $1945 a month blowing past the 2% rule at 60% of the units rented. Rent includes Water,Sewer,Trash. I have had family live in two of the units and have had no major complaints on it. It was built in the early 1900s and was remodeled im guessing 20 years ago. I know I would need an inspector to go through and tell me of the major problems and costs to fix. My questions are..

1. Would you want to pay cash for a property like this? Or do a 15-20 year commercial mortgage?

2. Since its my home town and being only 650 people (which I know most of them) is that a bad thing?

3. I would self manage possibly live in one of the units. Thoughts on this? I have a full time Job about an hour away.

4. Probably my biggest concern would be selling this in the future. I dont know if I could. Would this be an automatic no if you are concerned about selling?

5. Since its early 1900s and it has the last brick of the Towns brick manufacture could it be historical? If so is there any special tax breaks with that? Or anything else that could be associated with historical buildings.

I know I haven't supplied to much of the financials besides rent and purchase price but any feedback would be greatly appreciated!

[David Fernandez]

@Cole Johnson, as you said some more info may be necessary to give you a better answer, but looking strictly at the numbers:

Purchase price: $65k

Gross Rentak Income: $3,200/month or $38,400/year (assuming all 8 units rented at $400/month)

Expenses: let's assume 50%

NOI: $19,200/year

You will recover your initial investment (assuming no capital improvements are needed) in ~3.5 years and you will still have a positive cash flow after that. 

The numbers look good, but remember, they are numbers based on assumptions. I'd ask for, at least, a pro-forma to start and the age and condition of the systems and roof. One of the risks I see is that there may be a lot of deferred maintenance (you mentioned it was last updated about 20 years ago) and with this low rents of ~$400/month per unit including utilities, you may not have enough room to tackle significant short term capital improvements. Also, with this low rents, any repair or turnover may wipe out your profits for one or two years!

I don't know the town where this property is located nor the area, you know the market being from there. Is there enough demand for these type of units? How long will it take you to fill out the vacancies? Is it attractive for people to move there or are there nearby bigger town/cities? 

You may not become rich by buying this property and hoping for major appreciation, but if you think there's enough tenant base and no major future events that you know of that may impact negatively the local economy; it looks like, on paper, you can get very attractive returns (cash flow) from this property.