Looking for advice/critique on multi-family deal

[Joseph Heath]

I'm trying to work the numbers on this deal, which is a buy and hold here in Texas. To keep it brief, I'll provide the high points (and spare everyone my analysis paralysis scribbles).

I've been working on a deal for a buy and hold (two duplexes) that yield a gross rental income of $2400 / month. The properties are older, built in 1948, and need some work. The current owner is VERY motivated to sell, I'm assuming they got more then they bargained for. The area is home for many oil field workers here in south Texas, so the demand for rental properties is very high (so no forseen issues getting tenants). The units are already occupied, as mentioned before, and the tenants are sitting on a month to month basis, but all seem willing to go to something more stable like a 6 month or 1 year lease.

So, asking price is 185k, I'm probably going to be offering 80k due to the repairs needed. With the lender, I have a hard money lender willing to finance up to 60% ARV so I might be able to get this without much money out of pocket. Worst case (by my math) if I get the property at 105-110k, with the hard money interest rate (and using the 50% rule) the cash flow will be somewhat small until I refinance into a conventional. Interest is 10% on a 15 or 30 year, so mortgage payment will be around $965 per month which means cash in pocket (figure of speech) will only be about $235 per month which breaks down to $58.75 per door. Each unit is 2/1 BTW.

I have a few questions about this deal that I'm hoping someone can help with:

1. How long after I close the deal should I wait before refinancing into a conventional? Is there a limit? I dont anticipate pulling out any rehab money unless the property inspection finds something bad.

2. There is some work that needs to be done, some items the previous owner neglected but I'm pretty sure there are laws (health and safety) that are being broken. Is there typically a reasonable grace period in getting those items fixed? In this case, there is a broken pipe (PVC) on the ground outside and one unit's dishwater (and garbage disposal) is now draining into the yard.

3. To expand on item #2, the property looks like it was ran by a slum lord. When I walked through the units were well kept by their current tenants, people taking care of their homes, and there is a lot of potential for raising rents but, I'm afraid there may be too many issues and that I should walk away from this deal and grab something.....easier?

Items I've noticed:

- Unit 1 dishwater and sinkwaste drains in yard

- Unit 1 and 2 have broken window panes, ground level units

- Outer door to unit 1 and 2 has doesnt have a deadbolt lock

- Floors in all units sagged slightly when I walked through

- Door jams on 3 of the units have some wood rot

- Stairs leading to unit 4 are "rickety"

- Rain gutter on unit 4 is hanging off at a -30 degree angle

Typing this out, I think I may have slightly talked myself out of this one, but I'm very interested in input from the community! Sound like a deal or a money pit?

Thanks!!

Joe