I been looking at this site for a while now also reading books all giving excellent information. The one key that I’ve learn is to buy low that is where you make your money when you buy at a discount. Now I would really like to get into cashflow properties and was thinking if this property is producing money how in the world can I get it at a discount, especially when we’re looking into 10units and up properties? How did you all come across some of these discount properties and what were some reasons why the property was at a discount?
The last property I purchased was 20 units a couple of months ago. The price of the property was low because the Owner had no clue how to properly manage it. Only 4 out of the 20 units was rented and they may or may not have been paying rent to him. His poor management is the only reason it was sold so cheap.
In just a couple of months after the purchase it is now worth $150,000 more than day 1 and is cash-flowing well, because it is full of paying residents who are now paying market rent.
A couple other reasons cheap “Cash-Flowing” properties are available are:
Divorce
Owner does not realize the potential
Partnerships gone bad
Bad management
Health reasons
Ready to retire
and Even the owner becoming a drug addict
Richard Stephens
This “turnaround” approach applies (predictably) to just about any business (not just real estate) that’s been mismanaged.
If you can find and fix the mistake the current owner is making, you can almost overnight (figuratively speaking) create value.
This is sort of different, but with non-real-estate businesses, I have seen people a couple of times go in, fire a bookkeeper that’s stealing from the business, and turn a stinker (with low valuations and zero profits) into a goldmine (with sweet valuations and strong cash flows).
All this makes sense, too, the investor or entrepreneur is truly creating value through his or her expertise…
Richard how did you come across that property and what should I look for?
Tunckey06
This particular property was found by making unsolicited offers by mail. It was one of the several that contacted me back. At first I thought he was going to want too much for it because of the location, but soon realized that he was motivated. While talking to him on the phone I could tell he was not the type of person who would be a good manager so I decided to go take a look at what he had to offer. The place was a mess, and he looked a little embarrassed and seemed intimidated by the residents. However, looking pass the trash and into the community around it, helped me to realize just how little it would take to make it a great investment.
Richard Stephens
Hey Richard,
You stated that the building you had just purchased was poorly managed by the owner. Could you elabourate with examples of his poor management and what the previous owner was doing wrong (I like learning from other’s mistakes).
The DC Group,
The biggest problems were:
He had no leases with most residents
He let the property get overgrown with weeds
The rents were below market by $85 per unit
There was trash everyplace (ditches, common areas etc)
Most of the females said he would trade sex for rent
The roads were very bad (needed a 4x4 to get in)
Junk cars
Stray Animals
and even a Squater in one of the units
Of course there are a few other small items.
Richard Stephens