Buyout Local Portfolio?

[Michael Hoover]

Buy out of a local portfolio or don't buy?

Self bio: 19single single-family homes rented and self managed all local all BRRRR style, cashflow avg 320 per home. 55% dti. Able to recoup all investment capital through each deal to fund the next. (it's just slowish and requires a lot of my manual work)

Potential Deal to take through Owner finance:

- Purchase Agreement in place until 7/31.

17 doors - mixed 1 quad 1 triplex 3 quadplex 2 single family 2 1br cabin houses. 

- all are occupied

- 90% of properties are in rentable but rough shape and need significant work in the near future.  In small college town with high rental demand

Ask price 745k

Gross rent: 9750/mth 177k/yr     (differed maint properties with potential 200/mth per unit increase once renovated) estimated reno (190k across portfolio)

NOI: 91,475/yr (12.6 CAP) (includes tax, ins, listed maint for past yr)

After reno NOI 127,475/yr   (14.6 CAP) 

Deal info: 

   - Owner finance 745k 20yr at 6% 20k down minus deposits (~13k)

Cashflow  = 2100mth     (self-managed) (self maint similar to the previous owner)

By this alone, 2100 cash flow added per month, it will put me at my financial freedom number of monthly cashflow is equal or greater than my families spending amount. (so very tempting). The HUGE downside is these homes all kindof need full renovations. Therefore this cashflow will all be burnt. The buy prices of these home are much higher than I am acustomed to in my area and my other investments althought the super low downpayment owner finance at  6%  is much better than i can get elsewhere. 

Unlike my current active stratagy on my 19 SFH,  I will not be able to recoup the renovation cost back out of the property value by having an 80% Loan to value pulled on the back end because the buy price is just not good enough. Kindof making me think I should walk, buyprice too high.

This is my first time buying a portfolio, I have not been able to view the active units as thoroughly as I have vetted all my other deals. This is in a small town that I own and operate other rentals.

I am a bit nervous of the type of renters that are in these deferred maint properties currently but see big upside if properties are restored, Partialy because all are within 1/10mile and many property boundaries touching the community college. 

Pros:

-2100/mth (29k/yr) instant cashflow increase for only ~13k in the deal. 

-30k yr appreciation at (3%)

-30k princ paydown yr1, increasing each year after..

Cons:

- 17 more self managed tenants with more problems than my current 19 freshly renovated homes

- All properties need reno

- Properties are priced at value, not below value therefore I can't recoup renovation costs from finance out after value add. 

         Buying properties as singles in my area i have found much better deals than this although these are up and flowing and require no initial investment. 

My plan if i get the properties will be to Buy, slightly increase rents (as they are currently 200 behind market,) as tenants move out, renovate the properties with my BRRRR team in between ongoing Single family homes.

Backside (2years in),  I will have 210k cash in the deal with ~680k still owed and 5428 or(65k/yr) cash flow. Est After repair value 1.3m

Other large scares: Many of the homes would have code violation issues, many have foundational issues (although my team is accustomed to fixing). no current city inspection but what happens when they implement code inspection department in 5yr 10yrs. 

I do not have large reserve of capital although do produce enough through my current properties to Fund 200k of repairs over next 2 yrs. 

I had the opportunity to sign closing on this deal last week but I have currently delayed to think.  I think this deal is a no but the instant cashflow (and holding princ paydown/appreciation)  is hard to turn down..Pretty rough maint needed properties (but rentable)...  Thanksfor your thoughts!!!!!