20 Units + Retail but Section 8

[Oren K.]

I am looking at an opportunity but struggling with some non-financial questions regarding Section 8. After doing a fair bit of reading on the topic over the past couple of days on BP (thanks to all the contributors) it seems clear that there are very positive and very negative experiences. In large part, it seems to relate to how well you screen tenants but also which specific office you are in.

The opportunity is a retiring owner who has self managed the property for quite some time in Cleveland. The building is 20 units, 3 story property mostly 2bd/1bath with retail at street level. There is parking behind the property. The rent roll currently has 2 vacancies in the apartments and ~50% vacancy in the retail space. As well, the rent roll indicates that there are only 1 - 2 turnovers each year (9 tenants 2004-08 and 9 tenants 2009-13). With respect to utilities, each unit has it's own heating, tenants pay for their own gas / electrical and landlord pays for water and trash.

I can see from Google / Bing that there have been street level improvements locally in the past 2-4 years (great resource looking at older and current images) in terms of sidewalks, street paving, etc. The building looks good from the outside and the roof was replaced in 2006. I will only get to see the inside of the units at DD. I intend to put in any offer that the property be off-cycle inspected at purchase (annual in December) and credit for any HUD required repairs.

The CAP rate at the offering price is (~15%) on current NOI after adding in a management fee. Expenses before debt service works out to almost exactly 50% of gross (you would think they read BP :).

Here are my questions;
- What would you be asking prior to an offer to help qualify the property?
- Has anyone here worked with the Cleveland local office and what has been your experience?
- I do not know if the owner has property screened the tenants (still waiting for an answer) but can I re-screen on purchase?
- If I re-screen; can I reject if they don't meet explicit criteria or do I have to wait until their lease is over (I suspect so)?
- Can anyone recommend a PM in Cleveland who has Section 8 experience (I will not be able to self manage)?

That's it for now. Any answers or other questions I should be looking at welcome.