22 Rental Properties
Ok. I give up. I'm going to have to ask some questions. I have been doing sub2's for some time, but I have run into a unique situation. I have a seller in Dayton, Ohio that has 22 rental properties, and they are definately rental properties if you get my drift. Well, I do want one of them to do a lease option on, but other than that, they are all in not so desireable neighborhoods, not that it bothers me so much, because I could just get a management company to handle eveerything, but there goes more cashflow.
Well, the seller is wanting out of the whole rental business. There are taxes owed on most of the properties, asn well as 1 or 2 back payments. Right now there is about $3000 per month net cash flow on the properties. Some have had the same tenants for 4 or 5 years.
He is willing to sub2 these properties, or do whatever else it takes to get out from under these. Part of me says this is a great opportunity, but then another part of me says get away now.
I have an agreement already, of course, giving me the right to assign the purchase agreement for the next 90 days. He will be making the payments.(maybe)
So I am looking for some advice as to what some of you may do with these. I appreiate the help.
I'm no genius on this subject, but it seems to me that 3000 a month cash flow is extremely LOW for 22 rentals. A bad problem such as plumbing, electrical, etc.at any one of them could eat that 3000 up real quick.
I would do a very in depth study of the situation before getting involved here.
Inspect every property and make notes. See how high you can raise the rents, how much to fix them up to get higher rents, how much rent will each area support, are there many vacant rentals in the area, how much to catch up on back payments, taxes, etc., any liens on any of the properties??? How much could you sell individual properties for so you could dump a few and fix the others?
It is an interesting challenge. Once you have the answers to the above questions you will know if it is for you or not.
Good luck.
I am going to be calling the mortgage companies Monday........
I,m going to see what can be worked out
I may just take the one and run........
Guess if it's enough cash flow depends on perspective, that averages out to $136 a month per property, about in line with what I would expect. My point of view is based on Kansas and Iowa, I'm guessing Ohio plays out more in line with those than it does CA. There probably isn't a house in the bunch that he paid over 30k for.
To the original poster, sounds like you know the business, it's just a matter of if it's a move that fits what you want to do. I tend to be anal about purchases, very cautious to avoid potential money pits, so I wouldn't do the deal, I just don't have the ability to do the type of diligence I would need to do to feel comfortable on that many properties at one shot, especially in an area I'm not completely up to date on. IE my town has been approving special taxes like crazy to the tune of 7500 per pop, a stranger buying here could be in for a surprise when his 20k junker gets hit with a $7500 tax 2 months later.
If you decide you are up to the task, then it's a numbers game. The rough numbers sound ok, but you haven't given enough to really say. How much is owed? Using a management company will definately eat into your cash flow, off the top of my head using local numbers I would guess about $1000 for management. What is the maintance situation? Sounds bad, but how bad? Are they decent but in bad areas? Or soon to be on the condemned list?
Lastly, the "he just wants out of the rentals" doesn't work for me, it doesn't ring true. If they were straight up for sale I would buy it, he wants to cash out, but not when he is doing sub2. He could hire a management company to take care of things and effectively be out of it, and still supposedly have 2k a month cash flow. I question if the 2k is there, or if he has reason to believe it won't be. And, how do you make 3k a month, and be behind on payments and taxes and figure it's in your best interest to stop what it is that is making you 3k a month?
Good luck, be cautious.
Mykle
He has seven other properties that are in Columbus that are a bit higher priced. He land contracted them to another investor, but he has not paid in three months. He ran into some major maint. issues the beginning of the year, and he fell behind. Has not been able to catch up. Also, he paid from 30k to 65k for the houses. I checked with the auditor. The houses are from fair to good as far as shape. A couple are much better than the others. I also got all of the original appraisal values. According to them, there is around 275k in equity. His credit is ruined,, he is very disgruntled. The biggest thing is the pmts in arrears and the taxes. Also, I dont really want to be a landlord, but I don't want to miss out on a decent deal. I have a couple of investors interested. Thanks for the reply.
My experience with OH rental property investing is right in your back yard, Franklin. I finally decided to get out because the depressed economy and high unemployment rates also depressed market rents and market appreciation. After fourteen years of not raising rent, and my cash flow staying at a constant $205 per month, I finally decided to sell the property in 2001 to my tenant for only twice what I paid for it sixteen years earlier. The tenant obtained 100% financing and is now the happy homeowner.
I decided to 1031 into something with a little better cash flow, and greater prospect of market appreciation. if you are interested in the numbers, I purchased the OH property as a bank REO in 1986 for $33500 using 80% bank financing. With down payment and closing costs, my out of pocket on this property was about $8K. Another $7K in rehab a couple years later. I finally sold the property (after receiving a monthly cash flow of $205 for sixteen years) for $65K. I did a 1031 into a property in MD for $69500 and improved my monthly cash flow to $240 per month. In August of this year, I will put this property on the market for $150K and will 1031 exchange again, perhaps for a couple of condos here in SC.
If you do end up with a couple of rental properties (even if they are under lease option) I hope the economy in Dayton is a little better for you.
Thank you for the reply. I am actually in Cincinnati, but as you know, Dayton is not far away. The economy here is about the same, and that is why I have pretty much decided to take a couple of the best ones and run. I actually have a very interested investor in the others. e feels like he could L/O some of them. Thanks again.
I would be interested in hearing how this story ends so if you could provide a summary after you have finished what you are doing that would be really great.
Thanks in advance,
John
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