I always wanted to buy a mobile home park but the opportunity hasn’t been there for me yet.
However, this apartment complex has popped up and it is a good deal I think.
30 all-studio units for $180k. 100 year old place! Made of brick. Somewhat shaky neighborhood, but in a popular growing city. Next to walmart, mcdonalds, hospital, avg home sale is ~$105k. 60% occupied. Owner just got rid of a bunch of trouble tenants.
$300 rent which is low.
Owner bought the apartment 2 years ago for $190k. He owes 150k on it. He doesn’t go into specifics of why he is selling except that it doesn’t fit his criteria for rentals.
I can bank finance it for 5 year maybe 7 years with 20% down.
My plan is to move into the apartments if it is rather safe. If not I would just rent somewhere else safer close by.
I have 30 days due diligence and then 15 days after that to close. It started today! Thanks to the Due Diligence Manual from this website I used a lot of the info from it and emailed my list of items that I want from the seller.
I havent seen the apartment complex yet, just some basic pictures.
First time doing a big thing like this. I currently have two SFHs that are cash flowing and I am netting little over 1100/month between the two.
The only apartments I have owned have been ones that came with mobile home parks – I think around 10 units is the largest. The big difference between apartments and mobile home parks is that you are responsible for the buildings, whereas mobile home parks are all about the land (if you buy the right park). Here are my observations from the few apartments that I have owned. First, make sure that the building is in decent shape. These buildings can have enormous capital calls for roof replacement, etc. that you better be ready for. The apartment building that I “inherited” with a park in Shreveport cost over 100% of its revenue in repairs and maintenance. Every time we got the roof fixed, there was a water leak because a pipe burst. Then we’d fix the pipes and the foundation would need repair. The only one who made money on it were repairmen! My other experience with apartments is that – based on the neighborhood – they attract the only people worse than mobile home park tenants, especially on studio and 1-bedroom units. Why? They are mostly young people – or seedy older ones – with little money or assets. If you go in a unit, they normally are sleeping on a mattress on the floor, and the living room has a sofa from Goodwill and a rent-a-center big screen TV. To move out, they literally just walk off – they have nothing to even move. It is a continual revolving door, and half the people who come to look at a unit will scare you as to whether or not they want to rent a unit or just kill you and take your wallet. Mobile home park tenants at least have enough goods that they have to use a pick-up truck to move out. They normally have kids and a bit more stability. Finally, the only physical violence stories I know from landlords have been apartments. I know someone who was stabbed by a tenant when asking for rent. I also know someone who was raped while showing a unit. That stuff is in direct contradiction to my postulate that no property is worth dying for. Basically, apartments scare the heck out of me.
I own both apartment buildings and Mobile home parks. The problems I see with your deal are that they are all studio units. Like Frank said, you will be getting the bottom rate tenant and it will be a revolving door. People will move in and then 2 months later just disapear. We have a building with all 1 bedroom units. We finally tiled everyhting in the unit and made it as bulletproof as possible so when people move out, we can almost “hose it out” and get someone else in there. Also, the age of your building is going to be a problem, electrical and plumbing will need to be completely redone otherwise you will constantly have problems. The guy is probably selling it because it is a nightmare to manage. Apartment buildings always look like a good investment on paper but they never put in enough for repair costs on the pro forma. Newer class A and B buildings would be a different conversation.
I would be willing to bet the reason the present owner is selling is going to be the same reason you will be trying to sell in two years.
Also the 60% occupancy is a major red flag, Just evicted a bunch of tenants is likely BS. Normally when someone is selling they fill up all the units with any warm body that can crawl in from the alley so his story doesn’t wash.
I looked at a 10 plex one time that looked like a great ROI. $85k sales price. Upon further review, the deferred maintenance was such that I’d be doing what Frank reported - becoming a full time employer of maintenance people, plumbers, electricians. My final analysis suggested the proper deal price for that 10 plex was $8k, not $85k. So I passed. I saw in the paper some months later that the owner, a local big wig in that little town, made a show of donating the 10 plex to a local charity. Undoubtedly, he wrote it off as a $120k charitable donation on his income tax filing plus he got the local paper to say what a great guy he was. It was only a few years later that the local charity got rid of it as it never produced a nickle for them.
I bought distressed apartment buildings on the wrong side of the tracks, made them operational and held them for about 10 years. Like all apartment building landlords I could tell war stories all day long. Coming from my experience, I would recommend buying an apartment building only if you could make it much more profitable and getting out of that sucker as quickly as possible.
To put it in a few words, the big money is the turn around, not the holding.
I own a couple of duplexes and a 4 plex. A few family members and close friends have a few as well. The problem with buying a building of that size so soon in your real estate career is management. You don’t yet have the systems in place for a building of that size unless you plan to be there every single day. A local landlord that made a speech about how he bought and operates 600+ units at our local multi-housing association meeting started by living in the buildings that he managed. He got to a stage where he had the cashflow, but lacked the time to grow and acquire new properties. At that point, he sacrificed a ton of his cashflow to hire full time painters, cleaners, receptionists, showing agents, maintenance guys, and rent an office. All the workers clock in at his central office location and work the schedule that he lays out for them on a daily basis. To me, apartments are a labor and capital intensive business. They do not run themselves. The money lies in operational savings (e.g. using 1 cleaning employee to clean common areas for 15 buidings). Knowing that, it can be extremely difficult to compete with the big players. If you plan to get into the apartment business, I recommend living very close by. You can expect at least a few calls every day.
The reason I’m thinking about getting it is to just fill it up and resell it for at least double and then buy a decent mobile home park. I have limited amount of money to work with here 70k MAX.
These are 2 parks I’m looking at also:
First park:
40 lots 30 filled all owner occupied
$180 lot rent
10 minutes to walmart
SFR are 166k range
I can maybe get him down to 350k currently he will only accept 400k.
Second park:
70 lots 20 are filled
30 minutes to walmart
$140 lot rent
SFR are $75k
I can bring him down to 185k on this one.
Which route should I take? The apartment, 1st park or 2nd park?
A big fat NO!!! I have owed many apartments and complexes, 60% occupancy and I bet that is being kind. If I knew back then what I know now I would have bought every Mobile Home Park I could get my hands on. If these apartments have shady tenants you will have to prove to good tenants it is under new management and you might even have to evict the 60% and I think you said it was 100 years old, so there is some really old construction/plumbing and who knows what else. I almost bought something similar in 1985 but thank goodness I didn’t it has sold many times and it still looks like it did back then. So just my opinion a BIG FAT NO…I’m just saying.
If you are just planning to resell the 30 plex right away, I would not under any circumstances sacrifice more money than what is required to get it under contract. ($500 or so) I would then find a buyer and wholesale the thing. If it is true that you can sell it for double what you can tie it up for, then sell it before you buy. If you can’t sell it before you buy it, don’t buy it.
Your first park is the better one to make an offer on. Without knowing all the details, 350 is a good deal.