Help analyzing a unique situation

[Robert Hesselmann]

As a means of helping me with future retirement funding, my former employer set up the sale and transfer of a number of rental units (19 in all) mostly SFH. to me.

The deal is owner financed, no money down, interest only for the first 5 years (4%) and then P&I for the remainder of the 20 year payback period with the rate possibly being adjusted at the 6 year mark. Possibility exists for a second 5 year interest only period. There is a 5% penalty for selling any of the properties before the 5 year mark.

I do have roughly $500 per unit invested in closing costs, etc. ($9500)

The homes were professionally appraised, and then reduced by 15%-17% to determine selling price. The idea was to provide some instant equity.

My plan is to hold the properties for a total of ten years, and sell all or most. I have 35+ years experience with rentals both as service, PM, and landlord.

I have the skill and ability to both manage, and service the units.

I intend to "retire" in 5 years and have the rentals as a "job" for the next 5+ years.

The instant equity at the end of the ten year period amounts to $350K assuming they all sell for the original appraised value.

All good, and much appreciated! A very nice gesture that will help with actual retirement.

However, I would like very much to take on the rentals as a full time job, starting now...

Problem is that the units have a horrid cash flow issue. All told, 19 units crank out $398.00 per month.

That is, all the units combined only produce that total, and this is paying interest only.

Paying P&I, the cash flow is negative $4323 per month.

Most of the rents are below market. I am raising them as I go, but better than half need to be increased by $200+ not something I can do overnight without losing tenants.

Once the rents are where they should be, cash flow, interest only, will be $2681 per month, but will still be $2040 negative when P&I are added.

Worst case, if they don't depreciate is that there is a nice sum at the end.

What would you do?

Continue as is?

Sell and reinvest in better cash flowing properties, something else?

I’m sitting on 2.07M. in property…there must be more opportunities or possibilities…

Thanks,

Rob