Hey everybody, this will probably be a long post so bear with me....
I have been lurking here and doing a lot of reading over the past month. I have a deal that has landed in my lap and if I go thru with it, I will be a new landlord for the first time. I have always been interested in the idea of owning a rental property but have not thought about actually jumping in until now...
The deal fell in my lap on a recent trip home. I moved away from my home state about 5 years ago, where I grew up. All of my friends and family, folks who know the building trades and whom I know I can trust, are there. I have already begun building a team and in the event this particular deal is a no go, I have every intention of following thru and getting myself into some type of multifamily property in the next 6 months.
I have a friend that has picked up 30 rental units over the last 4 years in this market. He is investing and rehabbing full time and leaving the landlording to a property manager. He passed this one on to me word-of-mouth as he's full of rehab projects to work on and can't make it happen. The house isn't listed and the deal was found because my friend has purchased other homes from this slowly-retiring landlord.
So here's the deal:
1400ft duplex, currently both units occupied month-to-month. This is on a good street in a low income urban area outside of a major city in the midwest.
One of the sets of tenants have lived there 7 years, keep a neat home and take care of the outside upkeep in return for a small break in the rent. All indications from my inspector and the look of the property are that he keeps up with the lawn and snowcare and seems to take pride in his place.
The other set of tenants have been there two years, and keep a very dirty home. They have roaches and the place is strewn with clothing/garbage. It has recently come to my attention that there is some sort of civil litigation between the existing landlord and the tenant and the tenant had at one point, a year ago, filed a complaint with the city housing department over repairs that had not been completed. Those have since been completed as far as can be known based upon my inspection.. The owner was forthcoming about the fact that they do not reliably pay the rent and that they own him money, however we have not gotten into the finer details of that in this point of the negotiations.
THE NUMBERS--------
Rent is $1025/Month / 12.3k a year
initial negotiations are for $17k purchase price on LC, with terms $2k down and $276/mo for 5 years at 4%
Current owner pays all utilities, which total $4700 a year based on his numbers/some of my due diligence (still doing research there)
Insurance is quoted at $750 a year - these numbers put us right around the 50% rule so OK
We are way under the 2% rule and have a CAP of 24 (!)%
The property analyzer spreadsheet posted here gives numbers of $750/yr cash flow after real property management numbers and $500 a year in maintenance is accounted for.
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So far, I am thinking this is a good deal as it is slightly cash-flow positive immediately, plus I have talked to the utility companies and a contractor friend and we have ballparked the cost of splitting the gas utilities to separate meters to ~$600. The gas portion of the owners utilities is $2k a year of the costs.
However
I am getting analysis paralysis over the issues with the downstairs tenants. Ideally, I think the best move would be to ask them to leave within 30 days, offering them some sort of deal to be out by day 29 as a carrot. This would allow me to clean, exterminate, do a little rehab, and have the unit on the market. I made a quick home depot list of about $1100 in supplies and have friends in the area that are able to do the work for probably a bit less than what contractors off the street would charge.
What I am unclear on is weather or not there would be trouble with the eviction of the 'problem' tenants due to past complaints/civil issue with the current landlord. Also, I am obviously beginning at this but the majority of my research has been done regarding to buy and hold (which is my intention for this property), so rehab is not something I feel very knowledgeable about.
I believe the house, if brought up to standard would be worth about $25-$30k. Similar units on craigslist are asking $35-$40 now but based on zillows recently sold units, I think my number is more realistic.
So - I am stuck mulling over this deal now wondering if I'm in a little over my head for a first deal (some rehab/probable problem tenants), or, if this is actually a good opportunity for me to get into investing with minimal outlay and cash flow on day 1 (or 91, if I can get the tenants to go peacefully and get released after in a relatively short time). I have asked the current owner to have the tenants fill out an estoppel agreement form that has them list the current terms of their lease and also, what repairs they feel they need to have done.
I have also contacted an attorney in regards to the tenant situation, who has not gotten back with me yet, however I am interested in hearing what this community has to say. Too much for a newb landlord? Or, do I just need to 'step out of my comfort zone'?
Thanks in advance all!