8 Unit deal - Buy or no buy?

[Seth Williams]

So for the last 18 months I have been looking at the same piece of property, ill try and bullet the chain of events:

• - Property comes up for sale ( Boston area ) listed at 1.8 million
• - Total rent roll is 10,600 - 5 one beds, all under market value by about 250-400 ea minimum; 3 2 beds, also under market by about 300-400 ea. These are CONSERVATIVE market rents, as I have bed apartments personally im renting for 2100-200, and these are currently at 1550 ea. 
• - Only one heating system, so the bill is insane, almost 8-10k a year
• - water very expensive, not sub metered and a pain to do, tenants won't pay for it anyway, at 8500 / yr
• - Flood zone, needs flood insurance & crazy other insurance, totaling about 10k-11k a year
• - Deferred maintenance - needs roof, deck work, landscaping and some interior work. 
• - No one buys it, it sits, they price drop to 1.6, now they want 1.4, but it is no longer on the market. 

So back when it was on the market, I offered 1.1 , essentially, a bank won't finance this ( in my market I have a 80% LTV lender ) and they want 1.2 DSCR, but this will not cover with their underwriting #'s... 5% prop mgmt, 5% reserves, 5% vacancy, and the info I listed above, and it doesn't cover because the rents stink. All BTW, mostly section 8.

They keep calling me to re-make an offer, but won't take less than 1.4 - im told, and I have not remade my offer. About every 5 months I re-do my analysis and look at how much of a cash cow this could be if you do the work to the property ( light work ) get out some of the cheaper tenants so you can appeal & raise rents thru housing, and get the rent roll to where it should be, add coin op, decrease regular costs and so on. We have the money lined up & ready to go, but I keep looking at it, and can't pull the trigger.

Last point, if you moved this same piece of property 2 miles down the road its prob double the value, and, if you fix the rents, you can force some serious appreciation, around 500-600k. 

What would you do? 

[Omar Khan]

@Seth Williams You can exponentially increase the value of most properties by moving them 2 miles down the road. The only problem is that in real life things don't work that way. 

In a hot market like Boston, if a seller is coming back to you repeatedly but not budging on price they are either stupid, think you're stupid or not serious. 

You are on the right track. If $1.1M is the price that works for you - $1.1M is the price that works for you!

I would suggest tabling a firm offer and moving on. You can proceed if the sellers are serious but move on to other things in life. Don't talk yourself into paying more for a property.