Inheriting Terrible Leases

OP

Member since 2018 · 13 posts · 1 vote

I'm adding onto this thread. I'm going to do a little more number crunching this next couple days and figure out if I want to do the deal. I was thinking of maybe offsetting the money I'd lose for the 9 months by negotiating the price down by the amount I'd lose. IE. $3000 loss for the year so I'd offer $216,000 instead of $219,000. Also even if I broke even on this property is it worth the headache of working for free for 9 months just so I can have a 20% COC investment in the future? I'm not strapped on capital and this would only require around $40,000 to acquire so it wouldn't inhibit my investing on future properties for the year.

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Theresa HarrisPro Member

Member since 2019 · 15k+ posts · 11k+ votes

6y

@Isaac Rayne The fact that you are going to lose money right off the bat, is not ideal. Plus with how things are right now, I doubt you'd want 3 vacant units in Dec and you're likely to get that if you raise rents $200-300 AND add in utilities. For utilities, is there a reason the landlord is paying them? Ie are they all on a single meter?

You can always do a longer closing to reduce your losses, and to wait and see how things settle out in the next few weeks. I don't know if things will be moving quickly over the next few weeks.

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Kirk R.

Peoria, IL · Member since 2013 · 967 posts · 383 votes

6y

Originally posted by @Isaac Rayne:

Hello everyone! Today I went and saw a Triplex deal I wanted to run through my checklist and let me tell you the location this triplex was in is quite literally the best it gets for this type of C class Multi-family building. It was located in a gated community that is quite large and encompasses multiple different types of real estate from single families, to multi-families, to mansions. The amenities were also very nice including a country club, 2 golf courses and a lake. The listing price of this Triplex was $219,000 so it was quite a cheap deal with a rental income of $2550. So at face value it sounds like a great property (it actually is lol..) I comp'd out the area aswell and the other multi-family properties were charging around $1100-1200/unit while this one was around $900. So my first plan was to send a letter of intent and put an offer on it but unfortunately after doing a little more due diligence with my agent we figured out the landlord was covering all utilities for the tenants. So that alone literally killed any sort of cashflow this property would generate; infact it put it in the negative. So I didn't think it would be that bad, I'd just take it over and wait for the leases to end in a month or so and create a new lease agreement with the tenants or get entirely new ones. But here's the catch.. The current leases don't end till Nov. 30th. I love long leases but this current landlord is not only charging $200-300 less than market rent but he's also paying all the utilities... If I wanted to buy this property I wouldn't have any grounds for eviction and I would be stuck with these leases for another 9 months losing money every month which I could afford but I'm not sure if it's worth it. If I bought this property and up'd the rent and renegotiated that the utilities are paid by the tenants then this property would not only be in a great location but also around 20% COC which is FANTASTIC! Do you guy's have any advice or have you ever ran into something like this?

Do you guy's have any advice or have you ever ran into something like this?

yes i have. no paragraphs or white space & i pretty much stop reading.

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Isaac Rayne

OP

Member since 2018 · 13 posts · 1 vote

6y

Originally posted by @Kirk R.:

Originally posted by @Isaac Rayne:

Hello everyone! Today I went and saw a Triplex deal I wanted to run through my checklist and let me tell you the location this triplex was in is quite literally the best it gets for this type of C class Multi-family building. It was located in a gated community that is quite large and encompasses multiple different types of real estate from single families, to multi-families, to mansions. The amenities were also very nice including a country club, 2 golf courses and a lake. The listing price of this Triplex was $219,000 so it was quite a cheap deal with a rental income of $2550. So at face value it sounds like a great property (it actually is lol..) I comp'd out the area aswell and the other multi-family properties were charging around $1100-1200/unit while this one was around $900. So my first plan was to send a letter of intent and put an offer on it but unfortunately after doing a little more due diligence with my agent we figured out the landlord was covering all utilities for the tenants. So that alone literally killed any sort of cashflow this property would generate; infact it put it in the negative. So I didn't think it would be that bad, I'd just take it over and wait for the leases to end in a month or so and create a new lease agreement with the tenants or get entirely new ones. But here's the catch.. The current leases don't end till Nov. 30th. I love long leases but this current landlord is not only charging $200-300 less than market rent but he's also paying all the utilities... If I wanted to buy this property I wouldn't have any grounds for eviction and I would be stuck with these leases for another 9 months losing money every month which I could afford but I'm not sure if it's worth it. If I bought this property and up'd the rent and renegotiated that the utilities are paid by the tenants then this property would not only be in a great location but also around 20% COC which is FANTASTIC! Do you guy's have any advice or have you ever ran into something like this?

Do you guy's have any advice or have you ever ran into something like this?

yes i have. no paragraphs or white space & i pretty much stop reading.

Sorry you feel that way champ!

1 Reply

Isaac Rayne

OP

Member since 2018 · 13 posts · 1 vote

6y

Originally posted by @Theresa Harris:

@Isaac Rayne The fact that you are going to lose money right off the bat, is not ideal. Plus with how things are right now, I doubt you'd want 3 vacant units in Dec and you're likely to get that if you raise rents $200-300 AND add in utilities. For utilities, is there a reason the landlord is paying them? Ie are they all on a single meter?

You can always do a longer closing to reduce your losses, and to wait and see how things settle out in the next few weeks. I don't know if things will be moving quickly over the next few weeks.

Thanks for the reply! I'm not sure why the current owner is covering all utilities and charging very low rent.. I know the utilities are being metered, I'm just not sure on the specifics. And regarding extending the closing process, yeah I guess that is an option but one way or another I'm going to be inheriting this terribly written lease... It's a double edged sword imo. I want their to be improvement for me to add so I can create value in my deal, but not when the leases are 9 months from ending lol

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Theresa HarrisPro Member

Member since 2019 · 15k+ posts · 11k+ votes

6y

Originally posted by @Isaac Rayne:

Originally posted by @Theresa Harris:

@Isaac Rayne The fact that you are going to lose money right off the bat, is not ideal. Plus with how things are right now, I doubt you'd want 3 vacant units in Dec and you're likely to get that if you raise rents $200-300 AND add in utilities. For utilities, is there a reason the landlord is paying them? Ie are they all on a single meter?

You can always do a longer closing to reduce your losses, and to wait and see how things settle out in the next few weeks. I don't know if things will be moving quickly over the next few weeks.

Thanks for the reply! I'm not sure why the current owner is covering all utilities and charging very low rent.. I know the utilities are being metered, I'm just not sure on the specifics. And regarding extending the closing process, yeah I guess that is an option but one way or another I'm going to be inheriting this terribly written lease... It's a double edged sword imo. I want their to be improvement for me to add so I can create value in my deal, but not when the leases are 9 months from ending lol

I'd check to see if the units are individually metered. If not, that may explain why the current owner is paying the utilities.

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Greg M.

Rental Property Investor · Los Angeles, CA · Member since 2017 · 2k+ posts · 5k+ votes

6y

Just throwing out random thoughts.

It's only 8 months (April through November), not 9. Since it sounds like you will be getting a loan it's going to be even shorter. Given the current climate it's probably 2-3 months to close and another month before you have to make the first mortgage payment. You have lousy cashflow for 4-5 months. That's not bad.

The current price, which you say is a good deal, is probably taking into account the lousy leases.

If the landlord is paying utilities, it probably only has a single meter. Figure out the cost to split the meters. Some places it is fairly inexpensive. Others it is crazy expensive.

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Inheriting Terrible Leases

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