Newbie's first deal: Am I walking into a minefield with this one?

Question

I haven't made an offer yet, so please let me know if I am about to make a mistake!

Here are the details:

This is a city lot in a low-income area. There are three buildings on the property.

1/1 duplex @ $200 mo. per side

3/1 old and ugly SFH @ $400 mo.

Old and ugly mobile home @ $160 mo.

Total income = $960 mo.

Yearly income = $11,520

Yearly taxes = $2,000

Vacancy @ 10% = $1152

Maintenance = $ ???

Insurance = $ ???

All units are currently rented to long-term tenants (according to the broker).

The MH is non-compliant with current zoning, but is grandfathered in. It cannot be replaced and if left vacant for longer than four months, must be removed.

The duplex is simple and basic but looks to be in good shape.

The SFH is old, needs painting on the outside, and I am worried what the inside looks like.

Zoning allows for up to eight units on the lot, for whatever that is worth.

I can buy the property for less than $40K.

The numbers seem like a no-brainer to me. As you can imagine, this property is not in a great area and it is not likely to appreciate significantly in value. But that cash-flow!

Here is my newbie thought, "Getting this for less than $40K gives me room to make repairs, and with all units occupied, maybe significant investments won't be for a while."

Please either tell me I can't pass this one up, or talk me off the ledge, as you see fit.

Thanks!

Paul Timmins · Answer

@Jeff Taylor

Consider call a property manager that handles this area. Ask them how they fill vacancies, what they see rents going for and expenses by category per unit. Ask what they would suggest for the extra units available.

Go to IREM.org search for ARM certified property managers. Call 5 ask them  what they see them selling for. Ask if they know anything coming up for sale.

Good luck

Paul

Robert Musallam · Answer

Account Closed That's a great tip. Thank you!

Henry M. · Answer

Jeff Taylor,

I agree with Jean Bolger (btw, cool violin - I love Nuttin' But Stringz - Topic &  Lindsey Stirling)

Numbers are decent but you should think about the future... Not to mention location.

I would personally pass on these, but that's just me.
	
	Keep us posted on what you decide to do.
	
	Just my two pesos.

Big Henry

Jeff Taylor · Answer

Jean, thanks for insight.

Yes, these are below market rents for this area. But these units are also in below-market condition. When tenants leave, I would improve the units and increase rent.

David Jacques · Answer

doesn't seem worth the time to own these properties

Jean Bolger · Answer

Wow those are some of the lowest rents I've seen. Is that typical for the area? The thing is, the income looks good for the property over all, but it's a lot of "stuff" to maintain out of that income. If it was a single house renting for $960/mo you'd have one furnace, one roof--- you get the idea. So I'd guess your expenses will be more than the 50% 'rule' on this one. How much more, I don't know. If the rents are undermarket you may to raise them and get more out of it. But with longterm low-income tenants they may not have much more money to pay each month. If they leave you'll be able to get more rent, but you'll also have a lot of expenses getting rent-ready. OK, I realize I've done nothing to clarify this for you, lol. Just some stuff to ponder.

Newbie's first deal: Am I walking into a minefield with this one?

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