All Forum Posts by: Natalie Kondratenko

My realtor/property manager has a listing for a 4plex in a low-income area and has talked to the seller(s)...4 partners, about the idea of providing a second for the down payment. The bank I use will allow a second. Here is the terms of the deal:
100k purchase price
20k second at 6% amortized over 20yrs with the final balloon payment after 3 yrs.
Renal income is 1600 a month and the units are 2 bed room 2 bath 1000 sq ft apts.
Market rent is between 400 - 500 per unit in the area. My manager has 15 fourplexes that he manages in the subdivision out of about 60 blogs.

I'm concerned about the fact that it is a low income area with the usual problems - drugs, petty theft, domestic violence, etc but I don't feel uncomfortable when I go there and my manager says he is not uncomfortable day or night. There is a strong police presence there to keep the crime at bay.

The roof is about 7 years old, relatively new ac units in 3 of the units, 2 long term tenants, the other two within the past year. The building has been well maintained and the exterior was recently painted.

What else should I consider to make my decision?

Hi Thomas! I'm not too far away in Lafayette, LA.

Forgot to add...

Our investment property had been sitting so long that the bank had actually fixed it up (new carpet, paint, etc.). We asked for a home warranty and for minor repairs to be fixed. They didn't fix the repairs but gave us the estimated repair cost at closing...

We bought a homepath property for our personal home in Sept 2010. We bought it with the idea that eventually it would be a rental.

I've read somewhere that you can offer up to 89% of the listing price and they will consider the offer. Anything under that cannot be entertained. Not sure if that still applies or how true it is, so take it for what it is worth.

The benefit to using the homepath financing is that if you can get the regular homepath loan (not the renovation loan), you can put 3% down and not pay PMI. I'm not sure what the terms are on the homepath renovation loan for owner-occupiers. For investment property, I believe it is 25% down.

We started going down the regular loan route and then someone in homepath changed our house to a renovation-loan only property and our mortgage person talked us out of the loan and into a regular conventional loan. My advice on this point is that if you want to use their financing, use one of the mortgage brokers that are listed on the website.

The second house we bought on homepath after purchasing our primary home, we used one of their suggested mortgage companies and the process was much smoother and they knew what they were doing with the homepath loans.

Our mortgage company that we used on our primary house gave us a lot of mis-information about the homepath renovation loan and in the end, I wish I would have gone with that loan instead of conventional. She told us that we couldn't make cosmetic repairs, like kitchen cabinets, etc. Just things like new roof, foundation repairs, etc. But, I have been told since then that that is not correct.

As far as needing an appraisal, that is up to you. We didn't get one, but that was because we had already lost the house once to a higher-bidder and were able to get the house when they backed out for $5k cheaper than we had bid the first time. We wanted the house and knew that it was a good price for the neighborhood.

We didn't ask for any closing costs on our primary home, but we learned when we bought the second house with homepath that as an owner-occupier, we could ask for up to 3% cash back. With the investment property we asked for 2% closing costs (which is the limit for investment property) and received it.

This second property was bought in Jan 2011, so things may have changed with the closing costs, but it doesn't hurt to ask... especially if the house has been sitting for a long time.

Hope that helps!

Wow! Thanks for all of your responses!

To answer a few questions:
1. My current property manager mostly manages low-income and would be my property manager if I decided to buy this. However, this is outside of his area and although he is willing to do it, he says it is risky because of all of the unknowns for both of us.
2. I haven't priced the rehabs because I wanted to see if it made sense with just 8 units. The 2 units that need rehab have been in the same condition for at least 2 years. The seller never finished them since he wasn't able to rent out the other 8 consistently. Ballpark for the 1 bedroom is $3000. My dad and my husband would do the work, so mainly it would just be the materials. The other apartment needs everything and my property manager said he thought it would be at least $10k to get it finished.
3. I have spoken to the Police about this property and the area. They said that there are a lot of calls to the property - that they are disturbances/fights outside mainly. They said there has been no reports of drugs or drug activity there.
The area in general is low-income, very poor, etc. There is not a lot of job growth and the population has decreased slightly (1%) over the past 10 years.

I have decided to pass on this as it is outside my area and most importantly, my property manager's area and therefore too risky.

I forgot to add in Insurance and Taxes into NOI:$21500

I am a new investor and have two properties (3/2 SFR in middle class neighborhood and a 2/1 1/2 duplex in low income neighborhood) in the Lafayette, LA metro area.

I am interested in apartment complexes because of the cashflow and not having to deal with 100% vacancies.

I came across a 10 plex for sale (C property)in a small town about 25 minutes away. I've currently got it under contract for $176k, but the financials are very weak.

Seller bought it in 2004 and spent 2004 - 2007 rehabbing it. He gutted it and put in all new plumbing, electrical, fixtures, sheet rock, flooring, appliances, etc. The building is in great shape and two apartments remain unfinished.

There are 8 2/1 apts and 2 1/1 apts. The apartments that are left to be finished are a 1 bedroom that needs cosmetics (about $3k) and a 2 bedroom that has had plumbing installed, but still needs sheetrock and everything else.

Since that time he has had it on the market starting at $340k until I put an offer on it at $180k.

I requested to see all the financial information from 2009 - now. I only received 2010 and 2011 data because it was self-managed before that point and he isn't forthcoming with the data.

In 2010, there were only 2 apts rented and the property lost money. I have been told that the property management company he was using at the time is not very responsive to low-income properties. The property manager broke off from that company in Dec 2011 and since that time has filled 7 units (one of which moved out last month).

There has also been problems with loitering and a lot of police calls to the property for disturbances. But, the property manager said that they have worked out an agreement with the police (the station is two blocks down) and they have stopped the loitering and things have gotten better in the last few months.

Since this year, the property is taking in an average of $3000 per month. To attract tenants, they offered all bills paid on 3 of the 2 bed. and they are charging $550 a month. Property Manager said the electricity deposit in the town is $300 and that people can't afford all of that up front. There is also section 8 tenant in 1 paying $460, and another tenant paying $375 without electricity. Then, there is a one bedroom renting all bills paid for $450.

There are not a lot of apts in this town, but the ones that I called on rent a 2 bed. for $550 - $650 w/o electricity and have a waiting list.

The seller is motivated as he had grand schemes to rehab this place and make a killing and it hasn't happened. He has had it under contract over the years a few times, but the price was too high.

I still think the price is too high and I am nervous because the property has lost money every year from what I can tell from his tax return (retained earnings of -85k since 2004).

I have also had a hard time doing the deal analysis, since their seems to have been such poor management and the financial data is all over the place.

Here are the facts:

Purchase Price currently : 176K
Property taxes (after adj.) $1300
Property Insurance (incl Liability) $3000
Gross Rents (using current model and only 6 rented) $34910
NOI: $17,200 (as best I can figure. this includes $100/mo per apt for electricity, 10% management, 75% finders fee and turnover every 8 months), $200/mo water, 10% maintenance.
Mortgage with 20% down at 6.5% for 20 years = $1050

Sorry this has been so long. Thanks for your help and advice...