I'm hoping for suggestions on ANY possible way to make some money on a packaged multi-family deal I've just inspected (off-market, but broker involved). At this point I am leaning to walking away from it. The deal involves purchase of a total of 3 duplexes which are spread across 2 parcels (one parcel has 2 duplexes on it). These are 1920's SFR converted to duplexes many years ago. They are non-conforming but allowed to stay multi's if electric hasn't been cutoff 1 yr or more (2 duplexes still have electric, but the 3rd one I must verify). This is in metro Atlanta area in a very stable neighborhood, but surrounding areas are lower-income mostly. These buildings are all in bad shape (see below). Price not finalized yet, but looks like minimum that would be accepted is approx 85-95k (includes all parcels/buildings). I doubt any lender (other than maybe hard $) would finance this purchase. I do have access to some cash funding, but would NOT want to tie it up for very long if used.
Target Property for Deal:
First note all duplex buildings have newer roofs, but there are still some leaks/damages on parts of roofs. All units have either no HVAC or only partially functioning old furnaces & H20 heaters (no AC at all). Huge trees growing over roofs. All units need major floor/subfloor repairs in most areas (from water damage and shoddy work done in past). Kitchens & Baths are all very old and some only partially functioning. Mostly galvanized plumbing (lots of rust). Almost no interior/exterior/system updates on any buildings through the years. Safe to say MANY code violations throughout all units. Oh, and did I mention that thrown in for good measure is a "Pacific Heights" type tenant that owner is afraid to evict.
Duplex A: 700sf, 1/1 + 1/1. Units share electric (1 subpanel), gas, water (and the water is also shared with Duplex B as well). Very old/rough inside & out. Not liveable as-is. Vacant and ugly inside & out. Needs major exterior siding repairs as well.
Duplex B: 2000sf, 1/1 + 2/1. Good curb appeal; Inside rough; Gas and electric metered separately; water shared with Duplex A. Furnaces very old, but partially functioning. 1/2 Occupied.
Duplex C: 2000sf, 1/1 + 2/1. Good curb appeal; Inside rough; Gas/electric/water all shared. 1/2 Occupied.
If you haven't called this a 'dead' deal yet, go ahead and keep reading below.
Neighborhood:
- Mostly similar-aged 1920's SFR and maybe half have been rehabbed over the past several years. Also has it's share of rental houses and a few converted multi's like this deal. Certainly not a war-zone, but is located in lower-income area overall. Neighborhood is safe and I'm very familiar with the area.
- The renovated SFR's attract younger couples or old/young singles who like living near the city but at a more affordable cost. The 3/2 SFR's of similar size to these duplexes have approx 160-190k ARV, on average, depending on level of renovation.
- Similar non-conforming multi's in the area sell for a low of about $20's/sf if rough condition or REO. You'll notice the price of 85-95k I noted lines up closely with the $20/sf price (4700 sf x 20 = $94,000). Those in decent shape sell mostly in the $40's/sf.
- Market rents for these types of multi units in decent shape are 450/mo for 1/1, and 550/mo for 2/1. Little room to raise rents much higher, even if rehabbed well.
The renovation estimates for these buildings would be very large (well beyond anything I've done). Basically all new systems are needed. Heat & Air for 6 units; H20 heaters for 6 units; Separately meter off at least gas and electric for 4 of the units (which likely gets into expensive electric & plumbing code upgrades); Switch out the rusted galvanized piping (all the way to street) on all buildings. 6 kitchen and 6 bath upgrades. Major flooring & subflooring repairs. Tree trimming/removal and roof/skylight repairs. This has led me to believe that full or partial SFR conversion may be the only option due to level of repairs needed and low rents for area. Tear out everything inside and start over -- also pricey, since it adds new framing/drywall/pier supports as well.
Note that I would not personally want to hold these as rentals as-is. The living conditions could certainly be labeled as 'slumlord' currently which I will not do. I also prefer not to keep low-end rental anyways (too much tenant hassle). One current tenant is OK, the other is non-paying and extremely unstable/dangerous.
Does anybody see a deal here in any way/shape/form or at any price level? Thanks in advance to anyone who may have input.
