Author Topic: Too Good To Be True Rental Property?  (Read 849 times)

joer1212

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Too Good To Be True Rental Property?
« on: August 10, 2018, 10:52:55 AM »
I just saw a listing for 89k in a small town in Massachusetts (population about 15k). It's a whopping 8-family house, with 23 bedrooms, 8 baths, 8,039 sq ft. It can potentially generate 5k or more in rental income a month. I can probably negotiate this property down to 70-75k. The house seems to need some work, but nothing crazy, at least on the surface. It is being sold by the owner & some owner financing may be available.

I'm seriously considering cashing out some of my stocks from my taxable account and dumping it into this house. The potential ROI is phenomenal. But, it sounds too good to be true.
What's the catch? Why would a landlord sell such a goldmine at such a price? Is it hard to rent? Is he moving to a different state, and doesn't want to be bothered with long-distance real estate? Are there hidden problems with the property?

Thoughts?

FYI:

- I live in Brooklyn, NY

- My brother owns 2 homes nearby in Massachusetts. He can manage this property for me for a piece of the rentals (it's still worth it for me)

- If I decide to take the plunge, would I qualify for some kind of tax incentive, or other benefit, because I'm a first-time home buyer? I want to mitigate my tax bill when I cash out my stocks



Papa bear

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Re: Too Good To Be True Rental Property?
« Reply #1 on: August 10, 2018, 11:07:29 AM »
Is it being rezoned? Work done on the place that wasn't permitted and has a stop order? No occupancy permit? Major structural issues?  Hazardous material on site? Illegal use of space? 


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Slow2FIRE

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Re: Too Good To Be True Rental Property?
« Reply #4 on: August 10, 2018, 12:55:26 PM »
Reading the description kind of sounds like they ran out of money trying to fix it up and/or there is some major defect that will be very expensive.  Zillow appears to list that quite a few buyers backed out during the due diligence period (I would guess).

Curmudgeon

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Re: Too Good To Be True Rental Property?
« Reply #5 on: August 10, 2018, 01:17:39 PM »
If it appears too good to be true, then it is too good to be true.  No way a property with 5K/mo rent is sitting on the market, seeing price cuts, and no buyers.
The fact that it mentions 'potential' in the first sentence is your tip-off that it has major problems :)

Doesn't mean it might not be a good deal, for the right person under the right circumstances.  It's just not going to be as easy as buying it ans sitting back while the cash rolls in.

mozar

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Re: Too Good To Be True Rental Property?
« Reply #6 on: August 10, 2018, 01:48:42 PM »
I think you have to live in the house to get credits.

waltworks

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Re: Too Good To Be True Rental Property?
« Reply #7 on: August 10, 2018, 02:12:22 PM »
Looking through the pics (which, remember, were chosen to try to *sell* the house) it looks to me like it's a complete gut-and-rebuild job. New floors, new walls, probably a lot of new electrical and plumbing. Obviously paint, carpet, smoke and CO alarms to get up to code, maybe other code requirement work, exterior siding and maybe roof work, windows, etc, etc.

The pictures show a wreck. It would be interesting to see what else is going on that's not pictured!

I'm not experienced with this big of a project but it my WAG here is that you'd be looking at $200,000 to fix the place up decently (and to current code), unless you want to spend the rest of your life DIYing it. It *still* could be worth it to someone, but people have repeatedly backed out, it appears.

Probably too good to be true.

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patchyfacialhair

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Re: Too Good To Be True Rental Property?
« Reply #8 on: August 10, 2018, 02:13:58 PM »
So, the same brother that tried to get you to "invest" in a horrible pot business idea would be your property manager for a large property where multiple buyers appear to have backed out already? What's in it for him? What is his experience with property management? With landlord-tenant law? With identifying, coordinating, and executing on property maintenance?

Your're either severely overestimating the rents, or you're severely underestimating the likelihood of vacancies, severely underestimating the cost to bring it into livable condition, or all of the above.

https://forum.mrmoneymustache.com/ask-a-mustachian/would-you-invest-in-this-business/

robartsd

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Re: Too Good To Be True Rental Property?
« Reply #9 on: August 10, 2018, 02:46:54 PM »
This is not a residential property, it's commercial property (more than 4 units) so even if you planned to live in it your first time home buyer status is meaningless.

Disclosed hazards in the listing: burried oil tank, asbestos in the exterior construction. Some of the pictured floor tile looks like it's old enough to contain asbestos too.

Listing says that it's agent owned. I would expect a local agent to price as close to fair market value as they can. Plenty of reasons to believe this isn't the screaming deal that you want it to be.

tralfamadorian

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Re: Too Good To Be True Rental Property?
« Reply #10 on: August 10, 2018, 03:49:47 PM »
I just saw a listing for 89k in a small town in Massachusetts (population about 15k). It's a whopping 8-family house, with 23 bedrooms, 8 baths, 8,039 sq ft. It can potentially generate 5k or more in rental income a month. I can probably negotiate this property down to 70-75k. The house seems to need some work, but nothing crazy, at least on the surface. It is being sold by the owner & some owner financing may be available.

$5k/mo fully rented for 8 units? So, $625/unit and an average of 2.8bed/unit?

Who pays utilities? Water, electric, sewer, trash could eat a large portion of that $5k if the landlord pays, which is common for large home to apartment conversions.

I'm seriously considering cashing out some of my stocks from my taxable account and dumping it into this house. The potential ROI is phenomenal. But, it sounds too good to be true.
What's the catch? Why would a landlord sell such a goldmine at such a price? Is it hard to rent? Is he moving to a different state, and doesn't want to be bothered with long-distance real estate? Are there hidden problems with the property?

Why the landlord is selling is a great question to ask. Are they older and looking to retire or did they buy it last year and discover what a headache is it...

The town is very small. What's the economic outlook there? Is the population growing or shrinking? Is it section 8 or can people find good stable jobs? What's the vacancy rate?

If the property needs work visibly, then it's very possible that it's not up to code for a commercial apartment building, which at more than four units this is. Very expensive upgrades for that and you probably wouldn't be able to pass inspection for your cosmetic upgrades without it.

The only other place I know if with these kinds of numbers is Hagerstown, MD where landlords are on the hook for all kinds of crazy fines and fees on tenant conduct.

- If I decide to take the plunge, would I qualify for some kind of tax incentive, or other benefit, because I'm a first-time home buyer? I want to mitigate my tax bill when I cash out my stocks

As someone else mentioned, this is a commercial building, not a residential one. Banks are not anxious to make loans that small, which is why the owner has to offer financing.

tralfamadorian

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wbranch

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Re: Too Good To Be True Rental Property?
« Reply #12 on: August 10, 2018, 04:08:55 PM »
Yeah, I think waltwork's SWAG of 200k is not too high if a lot of the work has to be hired out. Asbestos? No thanks.

I suggest the OP stop getting investment suggestions from his brother.

Blindsquirrel

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Re: Too Good To Be True Rental Property?
« Reply #13 on: August 10, 2018, 04:48:30 PM »
       If at least 3 buyers have bailed, there is a reason. Also, listed since May and it is August, they both dropped the price and did 10k of electrical work. That says two things, 1. I am sure that absolutely plenty of folks with the cash to buy and fix the place with cash in their pockets looked at this and said nope. 2. There is a reason the seller is pretty desperate.  The high end of the range is $229K. The high end is probably pretty great condition. Unless you have done a couple dozen major rehabs, would probably pass. I have done a couple dozen rehabs and there is nothing that makes me want to buy it other than the cash flow possibility but would only consider if it were very close to me. When investing in RE, play first not to get hurt(financially). That looks like it could hurt your stash badly,
ZESTIMATE RANGE
$83,000 - $229,000

misshathaway

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Re: Too Good To Be True Rental Property?
« Reply #14 on: August 11, 2018, 10:45:06 AM »

Disclosed hazards in the listing: burried oil tank

If the oil tank leaks underground the homeowner pays a good chunk of the amelioration, at least in MA. I have a friend that this happened to.

Also, Adams is way out in the sticks. You may not get tenants with good jobs. You may get tenants who end up causing problems and not paying rent.

joer1212

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Re: Too Good To Be True Rental Property?
« Reply #15 on: August 11, 2018, 10:56:02 AM »
Thanks for all the enlightening feedback, guys. It sounds like real estate investing (at least in this property) is a mine field, and potentially a money pit, rather than a goldmine.
As you've probably surmised, I'm not well versed in this field. I've spent years becoming proficient in stocks/bonds investing, and I'm guessing that real estate requires the same due diligence in order to becoming successful.

(note: I am skilled in sheetrocking, tiling, flooring, electrical, some plumbing, and construction in general. I was hoping to leverage these skills on this property. I didn't intend to hire contractors to do this work)
« Last Edit: August 11, 2018, 11:00:21 AM by joer1212 »

Finallyunderstand

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Re: Too Good To Be True Rental Property?
« Reply #16 on: August 12, 2018, 02:07:18 PM »
Oh man, that looks like a money pit waiting to happen.  And I've flipped homes myself so I'm not just saying that.  Run.  That would be hundreds of thousands of dollars in rehab.

Steeze

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Re: Too Good To Be True Rental Property?
« Reply #17 on: August 12, 2018, 03:08:22 PM »
I walked that property recently and know the current owners through mutual friends, they are a family that own 100s of properties in the area. The place is in very rough shape, the photos do not do it justice.

The back corner of the house (back right of standing on the street) has significant settlement in the foundation causing two of the units to have floors that are approx. 12" off level. The asbestos siding is also in poor condition and is starting to crack and fall off. The slate roof needs replacement. The place is infested with both bats and rats causing a very foul smell to the poInt that one of the units was difficult to walk through. Almost all of the existing sheet rock on the walls and ceiling is in poor condition. The floors are also in poor condition. ALL of the bathroom fixtures are in poor condition. The kitchens that are still in place need to be gutted. The electrical replacement they speak of is not completed and there are wire hanging around. The basement was damp and moldy, any insulation was soaked and black. The place was condemned by the city before being left vacant as is evident by the signs in the front doors of the units, prior to that it was section 8. Also, the units are in an odd layout, having been converted from a six unit to an 8 unit at some point. The location of the building is also not in the town proper, and instead sits on a steep hill that would be very difficult to navigate in bad weather. The parking area is also in poor condition, needing repairs to a retaining structure and new pavement. I've been walking a few properties lately and this is the worst one I have been inside of. It needs to be completely gutted, and is in need of major structural repairs.

North adams has some decent deals, but the town is in rough shape. 20% of the population lives below the poverty line, and it has the lowest median and average income in the county. The population is in decline, and all of the Mills and factories are closed for good. Any purchase here would need to have great cashflow as price appreciation is not likely. Best suited for an active landlord who can work with section 8 tenants on fixed incomes. Definitely not a turnkey area for the absentee landlord.

Just my two cents - but if you like North Adams or north berkshire county for that matter, I am sure you can find better deals than this one.




joer1212

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Re: Too Good To Be True Rental Property?
« Reply #18 on: August 12, 2018, 08:06:32 PM »
Oh man, that looks like a money pit waiting to happen.  And I've flipped homes myself so I'm not just saying that.  Run.  That would be hundreds of thousands of dollars in rehab.

Thanks. My brother actually took a drive out there this weekend, and he concurs with your assessment.

joer1212

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Re: Too Good To Be True Rental Property?
« Reply #19 on: August 12, 2018, 08:14:44 PM »
I walked that property recently and know the current owners through mutual friends, they are a family that own 100s of properties in the area. The place is in very rough shape, the photos do not do it justice.

The back corner of the house (back right of standing on the street) has significant settlement in the foundation causing two of the units to have floors that are approx. 12" off level. The asbestos siding is also in poor condition and is starting to crack and fall off. The slate roof needs replacement. The place is infested with both bats and rats causing a very foul smell to the poInt that one of the units was difficult to walk through. Almost all of the existing sheet rock on the walls and ceiling is in poor condition. The floors are also in poor condition. ALL of the bathroom fixtures are in poor condition. The kitchens that are still in place need to be gutted. The electrical replacement they speak of is not completed and there are wire hanging around. The basement was damp and moldy, any insulation was soaked and black. The place was condemned by the city before being left vacant as is evident by the signs in the front doors of the units, prior to that it was section 8. Also, the units are in an odd layout, having been converted from a six unit to an 8 unit at some point. The location of the building is also not in the town proper, and instead sits on a steep hill that would be very difficult to navigate in bad weather. The parking area is also in poor condition, needing repairs to a retaining structure and new pavement. I've been walking a few properties lately and this is the worst one I have been inside of. It needs to be completely gutted, and is in need of major structural repairs.

North adams has some decent deals, but the town is in rough shape. 20% of the population lives below the poverty line, and it has the lowest median and average income in the county. The population is in decline, and all of the Mills and factories are closed for good. Any purchase here would need to have great cashflow as price appreciation is not likely. Best suited for an active landlord who can work with section 8 tenants on fixed incomes. Definitely not a turnkey area for the absentee landlord.

Just my two cents - but if you like North Adams or north berkshire county for that matter, I am sure you can find better deals than this one.

Wow, thanks so much, Steeze. Very enlightening.
I didn't know that the population of North Adams was in decline. If anything, I was under the impression that the town was experiencing a renaissance of sorts, as museums, galleries and restaurants seem to be coming into the area. That's what led me to believe this place may be a good investment opportunity, coupled with the fact that legal cannabis in the state is now a reality. Wouldn't that be a catalyst for growth?
« Last Edit: August 17, 2018, 12:43:51 PM by joer1212 »