Well I am 2 months into my first deal. I purchased 3 properties from a "Tired and worn down landlord". The original owner had multiple properties throughout the area he was looking to liquidate and step back from land lording of theses type of properties for a while. I toured the properties and quickly realized why he was looking to step back. He had owned the properties for 10 years and really hadn't put much money into them other then the money required to keep section 8 happy and paying the rent. To his credit these properties are located in a historic district and trying to do much to the exterior other than painting, planting, and pavement is next to impossible. To say i was apprehensive is an understatement. A few of the items that scared me were the following. Hallway was sloped 2" from side to side so there was definitely structure or foundation issues, all the tenants smoked so saying there was a lingering smell of smoke is beyond an understatement, walls were literally orange and caked with cigarette smoke as was the soffit outside two windows, multiple broken windows, peeling paint, doors stuck shut from wear and tear, broken front doors, and the worst part was every tenant knew his name and addressed him as if they were old pals (big problem). I knew they were mismanaged and very neglected as the expenses also stated. On the plus side there was 17 units out of the 27 he was selling that i wanted. I purchased a 9 unit, 6 unit, and a 2 unit.
The purchase was not going to be through a bank due to the neglect and inherent issues and i wasn't going to put a huge down payment with the amount of work and "restructuring" of the tenant base that was and is required. Originally i asked for owner financing and he agreed but later found out that wasn't going to work out at tax time for him as he wanted to 1031 the proceeds into another albeit nicer property but we were doing a 3 year term and the tax implications were not conducive to him as the sale would be noted as happening this year and not 3 years down the road at loan maturity as he was hoping. That would be defeating the ability for him to offset taxes and proceeds into a 1031 as he would have have realized the sale proceeds and consequences of the sale, but not the actual proceeds this year, but rather 3 years down the road. It's confusing and I am not a CPA or lawyer i just pay a lot for each to suggest their best ideas. After everything we ended up settling on a Land Contract that made us both happy and got me into the properties and him out of the mess that these properties are.
Overall the transition has been almost what i expected other than a few hiccups along the way. I wanted to do all the managing through an online system that handles all the calls and the collections such as hemlane or Avail but of course if you think 90% of these tenants have an email address you're as crazy as i was. The majority of the tenants are through multiple local agencies and as such most have mental or very light imbalances so yeah......they don't use much technology and have no computers nor cell phones so they sure as hell don't have an email address lol. So against all my better judgement and something i swore i wasn't going to do i march my pretty little self down there each of the last 2 months on the 4th for what?......cash payments ugh. Cash is nice but not in this way. So cash payments suck, picking up rent sucks, 3 broken windows, front door knob busted off twice in the same week, a toilet being used for number 2 but broken for 7 days just as Mr Brandon turner experienced, 3 police reports, basement ransacked and all the former owners tools were stolen, basement door kicked in and literally busted out of the casing, 3 vacancies (I'm actually happy about that), 1 tenant behind 2 months, all utilities in my name, cockroaches, insect infestation, and a brick through a picture glass window and water coming through the ceiling in a unit literally 1 hour after i closed on the properties oh and back to the slopping hallway....$21,000 for the repair of the foundation because all utilities need to be moved to accommodate the new post and structural beams going in hahahaha. Through the first 2 months I couldn't be happier and you still can't take the smile off my face because this is what i signed up for, this is what i have always wanted to do with my life, and I fricking love real estate. Also i recently discovered through my terrible due diligence there is an INCREDIBLE 1800 sq ft attic with almost 11 ft ceilings that will add about $1700 a month in rent once complete....winning
OK numbers i purchased the 3 properties for $435,000 i put $15,000 down and my note is at 7% for 3 years when i must pay off the loan or sell the properties. My payment is right around $3000.00 a month and the properties produce about $9500 in rent. I pay all utilities that last month ended up being in the $1500.00 range i don't have the exact figures in front of me. I'm pretty happy with the overall deal and the recent discovery of the attic.
I'm allocating around $3500 to turn each unit and this last unit actually resulted in almost $6,000 but it's due to the leak from upstairs, rot around the shower, and completely tearing out the tub, shower, cabinets, and floors. Going forward I'm instituting a RUBS in the 9 units, and the utilities in the 6 unit are already sub metered so I'm not sure why the former owner did't separate them but hey that's a win for me. I'm forecasting a savings of at least $1200.00 per month through utilities being turned over to the tenants and RUBS. Rents as you expect are under market rate and upon being turned should result in positive $1350 per month at the 9 unit and almost $1250 at the 6 unit. Completely leased up that will result in a $3800.00 per month positive adjustment through proper management and turned units without counting the additional rent of $1700.00 per month from the attic space. So $9500 in rent, $3800 in proper structuring of the properties and management going forward and the potential $1700.00 in additional rent from the attic AWESOME. This is how you win at real estate and with projects that scare off others. Find beauty in the ugly properties and prosper through the proper execution of details. Let me know your thoughts and introduce yourself as I am always looking to meet others who share my passion.
