All Forum Posts by: John Woodington

Thanks for the reply, @Sami Davis.  If it were just me living here, I wouldn't be as concerned, but I've got kids, and this isn't the environment I want for them.  I feel like it could be a win for everyone except the offenders, you know what I mean?

I live in a town home association just north of Minneapolis, MN.  There are 47 total units, and all of them are no trouble, except for one particular neighbor.  The owner is older, and does not live at this town house.  Instead, his daughter lives there with a handful of young men who are selling pot and other drugs.  The police have tried to raid them multiple times, to  no avail.  They break numerous association rules, and while we fine them diligently (I'm on the association board of directors), they always pay the fines (to the tune of $3000+ per year).  As an association, we have no legal recourse to evict them as long as they keep up to date on their dues and fine payments.  And since they are not technically renters, they can't breach a rental contract and be evicted that way.

After dealing with this for years now, my wife approached me with the following idea: We offer to buy the town house from the owner and turn it into a rental property and evict the troublesome neighbors living there.  The owner will never be able to sell the property at market rate without numerous interior repairs.  It is a 3 bed 2 bath unit, and would sell for around $185K if it were in decent shape.  Our idea would be to offer to buy the owner out of his remaining mortgage (I'm thinking $125K), telling him that he then won't have to pay for his daughter's housing, and he won't have to go through the hassle of rehabbing the place when he does need to sell it someday in the future.

My questions are:

1. Is this a good idea in general?
2. As long as the numbers work out on my end, what are the potential downsides of this approach?

Thanks in advance for any advice.

@Eric Beise I've seen a lot of 1% deals during my searches in the Twin Cities north metro area as well, though I'm typically priced out of them from the start (don't have the down payment saved for anything over $175K, and don't want to partner).  I'm curious if you've seen any luck going further out from the metro core area.  I see some better deals once I get an hour or more outside the suburbs loop, but I worry about higher vacancy in small-town MN.  Thoughts?

Thanks for all the feedback everyone.  I agree that this is a marginal case for me.  I know there are better deals out there, just have to keep looking.  The convenience factor is still the major plus for me here, but convenience doesn't earn money.

@Kevin Powell PMI on the loan would be $50 - $60/month, depending on the final purchase price. I agree that I am trying hard to justify this deal simply because of the massive convenience of it, and the long term wealth I think it will build. It's not a cash flow monster by any means, but at the right price still feels like a decent deal.

@Jonathan Streufert It is currently unoccupied, so I would have to find a tenant.  I'd be pushing the seller to pick up the closing costs, though that is by no means a certainty.

Thanks for the reply @Kevin Powell. Rents have been climbing pretty quickly around here, and $1500/month wouldn't be unheard of. Ideally I'd like to get into this place much closer to the $150K price range, at which point PITI drops to about $1180/month. That said, I don't think I can get it that low. $170K flat is probably the most realistic I could hope for.

Thanks @Tom Cramblit.  All utilities are paid by the renter.  I would have to take care of interior maintenance, yes.  These town houses were all built in 2003, so they are still in pretty good shape.  The major expenses would be furnace and appliances, though all those looked to be in good shape when I inspected the property today.

I'm seriously looking into doing my first deal after about 6 months of self-study in real estate investing, and I'd like to get some outsider thoughts on the setup of this deal.  The property I'm looking at is a 2 bed 2 bath single family detached town home 15 minutes north of Minneapolis, MN.  It happens to be directly across the street from my own detached town home, and is the exact same model building, so I'm very familiar with it, and the location is extremely convenient for a busy life with a wife and two kids, as I plan to self-manage it.  Here are the numbers:

Purchase Price = $176,900

PITI per month = $1250 (this includes association dues which cover lawn/snow/water/roof/siding).

Down Payment = 15% ($26,536).

Monthly rental income = $1450.

I inspected the property today with my agent, and it looks to be in pretty good shape.  The only things I saw that would need immediate attention would be to redo the laminate flooring in the kitchen and replace a leaking water heater in the crawlspace.  Roughly $1000 total at most.

Why I like this deal: The longer term plan has always been to keep our current home as a rental when we move to our next home, so having two in the same town home association would be extremely convenient.  This home has been on the market for a few weeks now, which is pretty odd considering others in the area have been selling within hours of listing for full price.  I think I could get the seller (an investment group) to come down on price slightly, but not much.  I do think this town house would be a strong asset long-term, as it is in a location and class of property that is rapidly rising in value.

Why I don't like this deal: The cash flow numbers are pretty low.  I don't need to plan for tons of capex on this kind of house, because most of the major things (roof and siding) are covered by the association.  But I wouldn't be banking much outside of the equity build each month.  My long-term goal is overall wealth rather than massive monthly cash flow, but I don't want to be losing money by any means.  This would also eat up almost all of my current savings, which I am really not willing to do.  I'm working with a couple lenders to see if I can get in at 10% down, but they are hard to convince.

Thanks in advance for your thoughts.

If you dislike debt, I'd get rid of the two 5% mortgages before getting rid of the 3.2% mortgage.

@Bruce Runn That's the way I'm thinking about this as well.  I don't know if I want to buy more properties or not in the long term, I'm just trying to figure out the best financial approach for the long term.