Considering Buying Apartment Complex
My father-in-law is facing foreclosure on his 24-unit apt complex, and is offering them to me for $650k (Assessed value is $752k), doing a seller carry-back of $150k for the down payment, so no cash out of pocket from me. The challenges are: 1. The property is located 5 hours away; 2. They've been poorly managed, with very poor rent records available; 3. The facilities are in desperate need of improvement (est. $50k) I'm new to the REI game, and though it sounds like a really good deal, with lots of potential $ once they're fixed up and managed properly, I'm somewhat hesitant due to the above mentioned challenges. Is this worth pursuing?
Basically your father in law is providing you an opportunity that has a very good upside. The conditions are that you will have to put time, effort and money into it, but once you really commit yourself to it, there is a good ROI sitting on the other side of the mountain once you get there. The questions is do you have it in you to put the work in that is needed to make a really great thing. That would be a you thing.
Keep this in mind too, there is about 10,000 people on TCI would like to have your opportunity and several hundred local candidates as well. You will have to make a decision.
Phil
[ Edited by Pherrejon on Date 10/30/2003 ]
hello. Before you move forward with this deal, make sure you have a complete and detailed understanding why your father-in-law is facing foreclosure on an income producing property. I've made that mistake in the past, and it came down to not enough rental income and too many needed repairs. Check the rental deposits with the bank for the last 6 months, and get a complete professional inspection of the property done. If the numbers don't look good, and you still want to move forward, make sure you have enough resources to turn things around.
Remember to independently verify all numbers. <IMG SRC="images/forum/smilies/icon_smile.gif"> [ Edited by randycs on Date 10/30/2003 ]
For me the distance would be the deal killer. The other challanges sound like I could handle it.
Hey,
I think we all get excited about an opportunity like this one!
But to state the obvious, there has to be something wrong or else your father-in-law would not be facing foreclosure.
So, if I understand the deal correctly:
1) You "assume" the existing $500k mortgage ($650-$150)
2) You have an additional $150k second mortgage to your father-in-law
3) You mentioned an ACCESSED value which is NOT the same as Appraised value, of $752k
4) The rent was NOT enough to cover the one mortage, let alone the two.
5) The property needs $50k in repairs.
6) The property is managed by someone other than your Father-In-Law.
Here are my presumptions:
1) Many of the units are vacant, due to the repairs needed, and/or vastly under rented.
2) The management company is crap
Based on this I think you would need to fire the MC and get someone very good in and do the repairs.
I don't think the 5 hour travel is a big deal, as someone else is managing the property.
Not to make you nervous, but there are tons of commercial and apartment buildings around that appraise well but can't make any money. I'm sure you have probably seen businesses and apartment buildings that continually change ownership and yet ultimately only decline a little more each time. Usually it has something to do with the location of the building in regards to the competition, or where the customers are. I would be extremely careful before I took on that much debt for a property that hasn't seemed to work to this point.