Multi-Unit Properties in Hagerstown, MD

[Will W.]

Hello Everyone,

I am currently looking to invest in property in the Hagerstown, MD market and am aggressively seeking out opportunities to acquire multi-unit properties. I would really like to stay between 5-30 units but am open to opportunities outside of that range if it makes very good sense. 

I am wondering if anyone on here is currently a property owner or a resident of Hagerstown, MD and/or its surrounding areas and has a good idea feel on the rental market in the area. Particularly if it is getting more and more difficult to find reliable tenants or whether that is just here-say. I also have a deal example that I would love someone's feedback on. This is a property that my teammate and I have been working to acquire using creative deal structuring, though I am re-thinking the approach after talking to an expert I trust.

----Here's the scoop----

The seller wants the following:

Price: $400,000
Down Payment: $50,000
Master Lease term for 3 years with an option to buy at $350,000 and the option to extend the master lease for 1 year

After doing our due diligence, we have concluded the following so far:

Property needs about $30,000 of must-do repairs plus about $3,500 of basically necessary cosmetics for marketing purposes, so:

Repairs:  $35,5000
Vacancy: 6/10 units are vacant and one tenant has been served an eviction notice, so basically 7/10 units are vacant. The remaining 3 are paying $495, $575, and $700. The lesser two are 1-bedroom units and the $700 one is a 2-bedroom unit. So an average of $590 per month.

Here's the thing. After looking at the financial reports from the current management company and doing the math, this seller is losing upwards of $1500/month and has been for more than 3 years! He is a very hands off seller so I didn't expect him to know about the ins and outs of the property per se, however every investor looks at the financial reports of their properties, right??  Unfortunately for him, the property management company he hired is absolutely horrible. They do next to nothing other than collect pay.

With that said, we are not going to acquire a liability and pay someone upfront to take on a sinking ship. My thought is perhaps we can do a deferred down payment for 18-24 months, 18 months at 5% or 24 months at 6.5% interest (or somewhere thereabouts), re-position the property, refinance the property after it is performing and either cash out enough for some additional liquidity in the event of another purchase or just let the cash sit in the property. My fear with the money in the property is the fact that Hagerstown prices have dropped significantly in the last 10 years according to bestplaces.net, however our strategy is long term by and hold for cash flow so this may not matter, especially for a commercial property.  Although, I am not sure if getting a commercial bank loan will be a challenge with this market correction that many say is approaching.

I know that was a lot but if you made it this far, thanks for reading and I would love to hear your thoughts. What would you do in a situation like this??

Cheers and Happy Investing!

-Will