All Forum Posts by: Gerald Spina

I have an opportunity to purchase several local properties that were formerly part of a city sponsored revitalization project. According to the realtor because the city was subsidizing the original construction there are restrictions on the deeds.

1. The property must be used for investment purposes.

2. You cannot evict the tenant to increase rents, move into the property or sell to a perspective homeowner.

3. There is no "rent control" on the properties, but you cannot raise the rent above the income level of the tenant. This was put in for the section 8 houses however most of those were sold off.

The realtor states that most of units rent for $700 a month plus water, "which is a stretch for the current tenants who pay $590/month plus water" but they were told rent would increase after the properties were sold. Also most of the tenants are long term tenants some have been there up to 13 years.

On the surface the numbers look good but some of the conversation with the realtor has raised some concerns and I'm not sure how / what to ask to clear these up.

Can I ask for copies of the lease agreements with the current tenants? How do I validate income to adjust the rents? Can I ask for a copy of the deed restrictions? If the tenant was told "rent will go up" can I increase the rent or is the deed restriction keeping the rent at the current numbers?

Like I said on the surface the deal looks like it could be a good income property. But it looks like it could also be a costly can of worms. If these aren't section 8 tenants and they are barely making ends meet. Is there a way I can see how often the tenants have been late?

Any advice you can offer is greatly appreciated.

Thanks

I have an opportunity to purchase several local properties that were formerly part of a city sponsored revitalization project.  According to the realtor because the city was subsidizing the original construction there are restrictions on the deeds. 

1.  The property must be used for investment purposes.

2.  You cannot evict the tenant to increase rents, move into the property or sell to a perspective homeowner.

3.  There is no "rent control" on the properties, but you cannot raise the rent above the income level of the tenant.  This was put in for the section 8 houses however most of those were sold off.  

The realtor states that most of units rent for $700 a month plus water, "which is a stretch for the current tenants who pay $590/month plus water"  but they were told rent would increase after the properties were sold.  Also most of the tenants are long term tenants  some have been there up to 13 years.  

On the surface the numbers look good but some of the conversation with the realtor has raised some concerns and I'm not sure how / what to ask to clear these up. 

Can I ask for copies of the lease agreements with the current tenants?  How do I validate income to adjust the rents?  Can I ask for a copy of the deed restrictions?  If the tenant was told "rent will go up" can I increase the rent or is the deed restriction keeping the rent at the current numbers? 

Like I said on the surface the deal looks like it could be a good income property.  But it looks like it could also be a costly can of worms.  If these aren't section 8 tenants and they are barely making ends meet.  Is there a way I can see how often the tenants have been late?  

Any advice you can offer is greatly appreciated. 

Thanks

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $29,000
Cash invested: $25,000

3 bed 1.5 bath house in Bolles Harbor, walking distance to beach and marina.

What made you interested in investing in this type of deal?

I originally purchased as a home for myself to be closer to work. At the time the housing market wasn't great and due to a career shift it was difficult for me to get financing so I needed a house I could pay for with cash.

How did you find this deal and how did you negotiate it?

My cousin was a realtor, I worked with her a lot and we looked at close to 200 properties before settling on this one. The house was vacant for 7 years and needed a lot of work. It was being sold as a short sale and the bank was reluctant to accept the offer. At one point I almost walked away from the deal since their delay caused me to miss the deadline for the home buyers tax credit. The bank countered by dropping the price by the difference of the credit.

How did you finance this deal?

I used a cash loan from my 401k

How did you add value to the deal?

A lot of sweat equity. I replaced old plumbing and repaired damaged flooring.

What was the outcome?

Home is valued at more than 4X what I paid

Lessons learned? Challenges?

It was a lot of work. Some of the work, like demolition should have been sub'd out. I should have gotten more quotes on some of the work I hired out and I should have had a more solid plan going into the renovation.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Michelle is no longer working in real estate.