Newbie with an opportunity for a multi unit purchase

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Newbie with an opportunity for a multi unit purchase

Anne Laurenzi
Wholesaler · Pensacola, FL · Member since 2017 · 20 posts · 7 votes

So, a property near me just posted a few hours ago. It's 6 units. 1 duplex that is 2bed/1bath and a 4-plex that are 1/1 each. They want $120k. At MINIMUM, I could get $600 for each duplex unit and $400 for single units. That's being very conservative. Without repairs and 20% down plus closing costs, I'd be in for $32k. This gives me about $600 cashflow and a cash-on-cash of 22%. That's if I go low on all the rents. I also went really conservative on the vacancy, repairs, and cap-ex. I drove past it and it looks like it's all rented out as of now.

Here's the catch. There are no pictures of the interiors and it is in a VERY low-income area. Obviously, I wouldn't buy anything sight unseen and would go look at all the units first. My concern is getting into way more than I can handle. Do I want to start my real estate investing career dealing with a low income property?

Here's a link to the property if you want to look at it. The street view makes it look a bit better than what it looks like now.

https://www.trulia.com/property/3275822033-6630-Applegate-St-Milton-FL-32570

Any advice/encouragement/discouragement would be really appreciated. If I get more pics or info, I'll update the post.

Thanks,

Mike

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Ronan M.Pro Member
Rental Property Investor · Chicago, IL · Member since 2015 · 352 posts · 281 votes
9y

Well there is low income and then there is scumbags. Not everyone can be a Zuckerberg or a Bezos.  Some people have to flip burgers and wait tables. That's just life. And probably many of those that do are as good as person as the big earners. They just live a different life.

I would try to find out if all the tenants are low income BUT working... or are they NO income and up to no good. That makes a huge difference. If you cut grass or flip burgers 40 hrs a week you can only about afford $500 to $700 a month in rent. But they are still putting in an honest week of work. 

Try to find out as much as you can about the current tenant base. And don't be put off by a couple that pay each month but pay a bit late. That's a fact of life in the low income demographic.

And also do this (and I am serious...I do it all the time) stop a patrol car on the street, preferably outside the building and ask them how many times they have been to that building in the last 12 months. If they can't recall ever being there things are looking positive. If the cop tells you they are there every other week...keep looking for another building.

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  • Rich Dunne
    Loveland, CO · Member since 2017 · 7 posts · 12 votes
    9y

    Hey Mike,

    I'm new to REI as well and have been spent a lot of my free time reading and focusing on multifamily homes. I'm curious why you did the math with low rent as well as conservative expense numbers? Wouldn't it be safer to assume worst case scenario on both your income and expenses, especially without seeing interior photos?

    From what I understand, the risks of low income areas can be the neighborhood (crime looks like a regular thing around the area according your Trulia link) and tenants (can lessen risk with more careful screening, but still).  I know some investors stay away from properties that they themselves wouldn't live in.

    Do the numbers, if they work, still outweigh the potential headaches of managing the property?

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  • Chad ZabackPro Member
    Contractor · Waconia, MN · Member since 2014 · 33 posts · 5 votes
    9y

    I missed one last week that was similar. It sold before my agent could reach the sellers agent. The area was nice but the building needed work. I would make an offer ASAP and continue your due diligence and schedule inspections.

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  • Ronan M.Pro Member
    Rental Property Investor · Chicago, IL · Member since 2015 · 352 posts · 281 votes
    9y

    Well there is low income and then there is scumbags. Not everyone can be a Zuckerberg or a Bezos.  Some people have to flip burgers and wait tables. That's just life. And probably many of those that do are as good as person as the big earners. They just live a different life.

    I would try to find out if all the tenants are low income BUT working... or are they NO income and up to no good. That makes a huge difference. If you cut grass or flip burgers 40 hrs a week you can only about afford $500 to $700 a month in rent. But they are still putting in an honest week of work. 

    Try to find out as much as you can about the current tenant base. And don't be put off by a couple that pay each month but pay a bit late. That's a fact of life in the low income demographic.

    And also do this (and I am serious...I do it all the time) stop a patrol car on the street, preferably outside the building and ask them how many times they have been to that building in the last 12 months. If they can't recall ever being there things are looking positive. If the cop tells you they are there every other week...keep looking for another building.

    1Reply
  • Anne Laurenzi
    OP
    Wholesaler · Pensacola, FL · Member since 2017 · 20 posts · 7 votes
    9y

    @Rich Dunne, when I say conservative, I mean worst case numbers (high expenses, low rent) so the numbers seem good.

    @Ronan M., yeah, I in no way meant to disparage low income, just curious what kinds of things to look out for/expectations. I'll see if I can do the cop thing. 

    @Chad Zaback, I'm emailing my agent now. :)

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  • John Leavelle
    Investor · La Vernia, TX · Member since 2015 · 1k+ posts · 865 votes
    9y

    Howdy @Anne Laurenzi

    Here's my 2 cents.  

    As long as it is not a war zone/high crime area then the low income tenants should be ok.

    Have your Realtor provide you with comps for both building types. Determine a good ARV for each. There appears to be similar Duplexes on the same road. Find out the lot size. Can it be divided? The area behind the Duplex looks large enough to add another multi unit in the future. How is it zoned? The 4-Plex looks extremely close to the commercial building next to it. You will need to check easement and right of ways. You also need to do a Rental Market rate analysis for the area. Are current rents in line with the area.

    Personally I would like to know why the Seller bought the properties in July for $110,000 and now wanting to sell one month later for $10,000 more.  

    Your financing is off. This is a commercial loan deal (5 or more units). Which has a whole set of different requirements. 25% down payment, 15 to 25 year terms, higher interest rates. You will need to meet certain Lender criteria. LLC, 2 years of Landlord experience, P & L report, etc. You might try to find a portfolio lender as a happy medium.

    Definitely have an inspection as @Chad Zaback recommended to determine the condition and life expectancy of all major components and appliances. It will help you estimate immediate Rehab needs and develop a more accurate CapEx reserves requirement.

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  • Anne Laurenzi
    OP
    Wholesaler · Pensacola, FL · Member since 2017 · 20 posts · 7 votes
    9y

    Thanks everybody for the advise. It looks like this might be an opportunity that gets away. I don't have the ability right now to get a commercial loan. It would have been really nice. I am looking at a duplex that is close to that area. Maybe that will be a good start and lead to other opportunities in the area. 

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  • Dylan Tettemer
    APO, AP · Member since 2016 · 168 posts · 54 votes
    9y

    @Anne LaurenziI fully agree with @Ronan M. on what he said about asking around. Another thing to piggyback on that is to speak with the neighbors and see what they say about the building. Neighbors love to gossip!

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  • Curt Smith
    Rental Property Investor · Clarkston, GA · Member since 2012 · 2k+ posts · 1k+ votes
    9y
    hi there, you need to study how muulti families work . one bedroom apartments are taken mainly by transient men if you look at the rent rolls for that quad they're all one beds you will find that there's High turnover and partial pays another words some percentage of those four units don't pay the whole month's rent on time they pay fractions of it through the month look for eviction expenses that aren't reported turnover expenses that are understated replacing stolen appliances. a multi-family deal like this is priced as follows take the annual gross actual income not the potential income but actual income multiplied times .4 that represents a 60% expense ratio. divided by .11 or .12. this represents 11 cap or 12 cap junkers like this have to trade at a very high cap rate.
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