Quadplex. What would you do?

[Andrew Michael]

Hi all,

I will try to cut through the fluff and get right to it.  I have a quadplex that I am going to submit an offer on however I wanted to get feed back from everyone.  Lots of factors here, some manageable some not so ideal however the numbers seem to work every way I run them

I was contacted by the son of a deceased mother who after her death, found out she owned several properties.  He has 0% desire to be a landlord or keep them so I have an extremely motivated seller.

The quadplex is a waterfront property that sits on about an acre of land.  The build is about 70 years old and was built over top an original stone home foundation (see pictures attached).  It is fully rented and the last time a room was available there were 12 applicants within 4 days however the local economy is 100% reliant on coal mining which could potentially disappear at any time.  I spent the past weekend visiting the community, eating at restaurants and learning as much as I could about the local market.  We are dealing with a lower class community where high school is the absolute highest level of education and there is little to no population growth.   That being said, the people seemed hard working and friendly and I personally have no issues working with people of this mentality or the challenges that come with it.

The Numbers:

Asking price: 49k However he basically told me to throw any offer out.

Current rent: 1003 total monthly rent (both son and agent feel this is about 300 below market rate)

Flood Ins: 1400 per year. (though in flood zone the area has not flooded in over a two decades since a dam and bank work was completed)

Annual Taxes: 876

Utilities: Tenant Pays

Water: TBD

Closing Costs: 7K

Repairs: 10k.  Personally there is about 5-7k worth of work I want to do for me to be comfortable as a Landlord.  Things like new gutters, encapsulate exposed wires, making sure each unit has two exits, etc.  The biggest factor/ unknown will be the support underneath which I will have a structural engineer take a look at.

THE GOOD

I am quite sure I could offer low 30's for the property and he would accept.  He verbally (and in email) said hes was not set on 49k and just wants out.  Every way I run the numbers, even using current rents I would be able to have all of my personal money out in under two years and have the entire property paid off in 10 (absolute worst case).  If I am able to successfully raise rents, the pay down time becomes even more attractive.

THE BAD

I am skeptical about the foundation support under the home and will see what the engineer says.  The property is quite a ways away from me making self management a nightmare.  Again this is not a town where property management companies exist.  I thought about having the best tenant be an on site manger of sorts but this caries obvious risks as well.  Lastly, it would seem to me if the mine closes my property and the entire town become worthless over night.  Unlikely since there is a rich mining history here but thinking through every scenario here as coal is a dying industry.  

Overall this goes against everything i know to look for in an investment; good schools, growing economy, job stability, etc.  What makes this attractive to me is the quick pay off and high rent ratio along with the long term "potential" of a waterfront lot for a rebuild.  Even if the entire project flops I would be able to recover long term as I am young and enjoy the risk.  

Any and all feedback is much appreciated.  Thanks so much in advance!