Buying and gentrifying a neighborhood

[Robin Casper]

I am trying to buy off market properties on a downtown street I invest on. The whole street starting at the corner consists of a duplex #1, a single family, Duplex #2, duplex #3, Six Unit #1, Six Unit #2. I currently own duplex #1, The SFH, and duplex #2. I am in contact with the owners of the remaining properties. Duplex #3 and Six unit #1 are owned by the same person. The problem is he is under water on them and they are in awful shape. The main problem I'm having is with the duplex #3. There are 19k owed in back taxes and the owners currently owe 53k on their loan. The house needs about 50k worth of work and was recently appraised for 45k. I have contacted the bank that holds the mortgage and informed them that the city is going to foreclose on them for unpaid taxes to see if they would entertain a short sale, but the bank said they would pay the 19k in taxes to keep the property and then raise the interest rate to 14% for the home owner! (Which makes no sense because the homeowner can't afford payments as it sits and they will just stop paying. Then the bank will have to foreclose. I'm working with the city and can probably get them to waive the back taxes because it is in their best interest for me to buy the remaining properties on the street and gentrify the newly rezoned downtown neighborhood. I'm determined to find a way to make this deal work because aside from a good cash flowing portfolio, the city has also alluded to giving me grant money to renovate the street with. I am moving forward with Six unit #1 & Six unit #2. Any suggestions for the duplex? Sorry if this was confusing

[Will Chamberlin]

@Robin Casper, what part of the city is this? I'd make sure there is an actual ability to gentrify the street and that you have enough funds to carry a bunch of empty units until you can attract the sort of tenant you want in there. 

As far as the Duplex #3 in question (I think), if it is a crucial part of your gentrification strategy I would offer the owner what he owes on it and pay the back taxes. That at least eliminates the bank issue and you acquire it cleanly. As long as your plan can handle the higher cost of acquisition and rehab, then it shouldn't negatively affect your long-term game plan as much as a falling down eyesore on your block would.