I have one, single family, rental house: the little brick box next door. Four bedrooms, 1 1/2 bath, backyard and a small deck. I bought it at a courthouse auction about two years ago strictly as a defensive move. It had been foreclosed twice in the previous four years and scammers had flipped it into the ground. Now that the tenant is gone, we’ve begun to rehab. It’s a hassle, but one we can afford for now. ( We paid 42K, on a 80K mortgage default, and our bank has appraised it at $110 and given us a $72K line of credit against it. )
So far, so good. When the plumbing and electric upgrades are finished, along with the floors, doors, and windows, we’ll rent it out again. The location is on a main street, with bus service, across from a large park, two miles from a large hospital and medical school complex.
Now the plot thickens. There’s an identical rental house on the block two doors down from our rehab job. It probably needs about the same level of rehab ( $20K ). The owner wants to sell it. In fact, she wants to sell me Five buildings! There’s the little single family, a two-flat and a four-flat on another main street on the South side of the same park, another four-flat on a side street 1/2 block from the park, and a final four-flat a few miles away. ( Her husband passed away last year, and she and the two college age kids can’t handle the properties since Dad had done all the handyman chores. )
I’d like to do well, by doing good, but can’t afford to upgrade the neighborhood just for grins. They are asking $490K for the lot, and it’s a decent price, below retail comps, but only two of the fours have rehab potential when the Sec-8 leases run out. The third four is destined to stay that way for the forseable future … ( light industrial accross the street, crackheads down the block ).
The mortgage brokers have given us some numbers, and we’ve crunched the taxes and utilities, the current rents, insurance, and reserves. They’d have positive cash-flow, but not by much.
Rehabing the two four’s, the duplex, and the single would cost about $120- 140K, ( through a second mortgage. I guess ).
But, vacant rental signs have been sprouting in the neighborhood for the past year, and I know the market is very soft. With so few units, just a couple of vancancies, or trouble filling them in the first place, could put us in the red.
Enter the “dealmaker”. Took some snapshots of the properties to a guy I’ve known for decades to ask for advice. He’s been very successful in RE with over 200 properties developed, owned, or managed. Well … he looks at the pictures, knows the area, and offers a partnership. Whoops! Hey, I like the guy, but we’ve never done business, and he has quite a rep as an “operator”, ( deserved or not ). I have some legal training, and know that 50/50 deals are easy to get into, but hard to get out from under.
What should I look for in such a rental property deal? What should I look out for? I know this is all complicated, but any suggestions would certainly be appreciated.
Thanks for your time and attention