14 Unit Townhouses

[Oren K.]

Context

The story is that an elderly couple purchased and owned a number of multi-unit properties which they unfortunately purchased 4-5 years ago. They kept the properties going until 2012 when the husband passed away. The wife tried but can not take on the owner / landlord responsibilities and the units have been getting run down without the proper supervision.

I am looking a purchasing one of the assets as a short sale. It is a 14 unit Townhouse property in Ohio taking up an entire block on a side street.

Units:

8 - 2Bed / 1Bath

6 - 3Bed / 1Bath

- All with unfinished basement

- Washer / Dryer hook-ups in basement

- 60 AMP service on breakers

- ~1000 sq ft. per unit

- All have old convection air, natural gas furnaces with no central air

Originally listed at $299,000 and recently dropped down to $265,000.

11 of the units are currently vacant and all units do need some rehab. Units can be turned inexpensively (e.g. just paint and cleaning) for ~$1,100 per unit but can also be brought to a higher standard for ~$3,500-$3,800 per unit including updated appliances and refinished hardwood through out based on discussions with a couple of contractors and the prospective property manager who knows the area well. Rehab should take 45-60 days but I’ve budgeted 90 days and then a lease out period of another 90 days since I will be renting at slightly below market (see below).

The units all have garages (not attached) and the landscaping is currently minimal (just some lawn). Most rental / condo townhouses in the area have off street parking but no garages.

As a comparable, a 4 unit townhouse, all 2 Bed / 1 Bath, property virtually next door sold two months ago for $120,000 but it is finished to a very high standard. This 4-unit property has no garages and rents for $500 -550 / M. It is fully occupied as are most others multi-unit properties nearby. This is a solid working class neighbourhood with no boarded up or dilapidated houses in sight. Neighbourhood clearly shows pride of ownership with flowerbeds, painted porches and no litter. Tenants in the area pay their own utilities so the landlord responsibilities are taxes, trash (part of property taxes), structure (e.g. roof, foundation, etc.), insurance and maintenance.

Intent is to rehab to a higher standard and rent out at slightly below market rents ($475 – 2Bed, $525 – 3 Bed) to lease up and then increase to $500 & $550 as individual vacancies occur due to the inclusion of the garages.

Performa Financials:

Income $82,000 (@$475 & $525)

Taxes 11,000

PM 8,000

Vacancy 8,000

Maint 8,000

Insurance 2,000

Reserves 1,000

Net $44,000

I am actually hoping that the maintenance will be somewhat less due to the newer appliances and other repairs but we’ll see.

Using the comparable (they have a higher finish level but no garage), the ARV is ~420. I am hoping to get the property for under $220K and will invest an additional $50-$75K (including closing costs). I would be all-in forabout $300K which is ~70% of ARV.

This will be a buy and hold investment. A year after stabilization, I will look to refinance the equity out.

Thoughts / comments / have I missed any major considerations?