Small College Town Portfolio Seller Finance

[Blake Lowderman]

Looking for some advice on a large investment opportunity from the BiggerPockets community. It would be greatly appreciated. A little background about the town/community/and my self. I’ve been investing in real estate now for almost 3 years and absolutely love it. I have 2 duplexes, a single family 4bed 2bath house, 2bed 1bath house, and a 3bed 1bath. I am a junior in college studying construction management. Besides investing in real estate, I manage an app I developed called the Herd which brings in a decent income, I work for a leasing company between classes, I bartend on the weekend, and I help out on the family farm. I go to school in the same town that I grew up in and it is the same town that a local investor has offered me to take over his portfolio of 20 properties for 1.5mil. These properties are the top of the line. New mechanicals, new roofs, tile in all bathrooms/kitchens, granite counter tops, hardwood floors, huge walk-in closets, laundry rooms, open floor plans, new siding, new windows, spray foam insulation. The numbers: gross 292,000, taxes 31,000, insurance 12,000, 5% maintenance+5% management+10% vacancy=58,400, the seller has agreed to seller finance with no down payment at 40 year amortization @ 6.75% for 2 year bubble. He also agreed to coaching and watching over maintenance, if something happened to help deal with it, all his connections, and backing when I go to refinance with a bank. The payment would be 9,050 a month=108,600. NET would be 82,000 which is a 5.4% CAP. The problem is the town. It’s a small college town in Illinois (which the state as a whole is struggling) with 30k people in 2013 to about 22k now because the college usually brings in 14k students but now it only has about 8k and the budget cuts to the school have hurt the town. Everyone is selling or holding. The big investors in the town have their hands tied and are barely making it. To me this is a buyers market but some people have advised me to stay away from anything in the town. Without the college the town wouldn’t be much. So 13 of the 20 properties are on campus the others are around town. The positives in the town are that the town has added a brand new McAllisters deli, Dunkin’ donuts, and CVS in the past year. They also have remodeled a huge old newspaper building into a retirement home, new Casey’s gas station, a bunch of tear downs. I would like some advice because this is what I want to do is be a full time real estate investor and this would fast forward me while allowing me to have funds to invest in better markets and some short term rentals which is something I really want to get into. If I need to give more information, just ask me. So do I take the deal? Or should I counter? Is the risk of the declining town and school worth it? Advice from the BiggerPockets community would be helpful since I have learned 75% of what I know from you guys! Thank you for that!

[Nicholas Kangos]

Understanding the demand for rentals in your area is very important. From what you said it looks like people are moving away not moving towards, businesses and the local economy (the college) is also hurting. Generally speaking it takes about 8-12 years for an area that is reeling from economic struggles to recover, unless there is an influx of new businesses or a new industry coming to the area. It may be a buyers market but can you potentially eat costs for 8 years of economic turnaround? It seems like you understand property enough to keep building a solid portfolio without having to throw 1.5 mil of debt on Black . I would not buy a rental in an area where the net-migration is negative. However, I love a good vision and I always talk about what the future holds for small towns around my state when laws and regulations change over time. Don’t risk losing your shirt on something that already has a lot going against it. Maybe negotiate for a price of the portfolio or a few select properties that you find to be the best or most likely to stay rented and hold value. Best of luck!