6 unit in a small town

[Dustin Tyson]

I've found a 6 unit complex for sale off market in my town. It's only 50% occupied, and I believe it's because it hasn't been updated since its was built in the mid 80's. Also, the property is tucked away in a B- neighborhood with low visibility. Rough estimate of improvements I'm putting at 10-15k per door in order to raise rents to at least market, which is $500-550. Current rent is $425. But, the population here is around 5,600 and has had a slow decline. Basically we've lost about 600 people in the last 4 decades which isn't terrible, but definitely not good either. There are some good jobs around within 30-45 minutes, but I'm unsure of any new industry coming to this specific area anytime soon. The hub of our region is doing pretty well and is only 30 minutes down the road. Asking price is $205,000. This would be my first multifamily by the way. What would you do and why?

[Jason Chen]

This sounds like one of those deals where the price seems good and you're getting a lot of bang for your buck, but it's really not. People who get suckered into these deals may be able to extract cash flow in good cases, but that doesn't mean it's the best possible first move you could make into the multifamily RE investing world.

What I would do is basically tell myself that this place is worth about $10,000 per door, and that's it. At $35,000 a unit, this is the price of a C+ class property in slight disrepair in Ocala, FL, which has a growing population and has about 60,000 people and has much more favorable rent prices and living conditions. The fact that you are saying you are cool with spending $60-$75k into rehabbing the property leads me to believe that you may wish to pay a total purchase price of $160,000 or so, and then have another $70,000 into repairs/labor. That comes out to a total of $230,000.

How confident do you feel that you could, without a doubt, have a good supply of potential renters paying $525 a month to live there, and that you could sell off the property 2-3 years later for at least $275,000 minimum? With a declining population, this deal terrifies me unless you get it for a price so cheap that it doesn't even matter anymore.