What minimum equity 2 buy Junkers? - Posted by ChrisC

Posted by Jim FL on November 12, 2002 at 18:19:11:

This really depends on what my goals are for the property and HOW I am buying it.
Equity is good to have and the more of it the better, of course.
However, let me tell you about some townhomes I bought a few years ago.
The TOP comp in this one TH complex was about $65k. They averaged between $55k and $60k for sales prices, due to some maintenance issues. They ALL started as owner occupied 20 years ago, but over 50% had become rentals, with a large portion of those at section 8 status, and run down.
The market rent was between $800-$950/month, depending on condition.

I was finding quite a few in there I could get for cash from lenders in the $35k-$40k range, a good deal for sure.
But, there were a number of others in there that I bought for $60k-$65k, subject to, or with a sandwich lease option.
I sold my first one when a T/B’er cashed out, for an appraisal that I felt was high, $71k.
This was 6 months after I found the numbers above.
I at one point had about 12 of these going at any given time and loved them. I was able to cashflow these anywhere from $200/month to $400/month.
I loved them, and they were low maitenance, brick buildings.
I never really put major work into them, my T/B’ers did most of it, and they all came out REALLY NICE.
I sold all of mine over a couple years time, for reasons we don’t need to discuss here.
But, I had a relative keep one unit they bought in the complex.
They sold theirs just a few months ago, for over $80k.
Just THREE years after they comped at $60k on average, many times lower. I think they were in theirs for $50k, and had rented it for three years making about $400/month.
Not a bad deal for them.

I got lucky, and equity at that time was not an issue for me. I used them to build cash flow.
By selling all of my units with lease options, I was able to get higher than market rents on most, tenants who handled the interior maintenance, an HOA that while a pain to deal with, still did well to maintain the outside with little prodding.

I did work on most of these units, they all needed something to be liveable again, thanks to vandals on most.
Some windows, a couple doors, toilets, some paint purchased and given to new T/B’ers, a whole bathroom on one, and a furnace in three of them.
But all the money for those items came from T/B’ers, with room to spare.
I alone was able to set the comps higher with each one I sold.
The place is now much cleaner and nicer as a result.
I also assisted the HOA with getting rid of some of the “Bad elements” in the complex, and set up a weekend police extra patrol for their properties.
I loved this complex and wish I could find another jewel like this one.

So, first decide what you want to accomplish, weigh all the factors in the deal, and see if the numbers make sense.
I no longer buy too many properties with little to no equity, we are in a different market.
But that does not mean I won’t, if other numbers in the deal make it attractive and make sense.
If you were given the chance to buy 15 properties that were encumbered to 90% of TODAYS VALUE, but they each cashflowed SEVERAL hundred bucks per month, with low to no maintenance issues, would YOU buy them?
Would others?

Good luck to you.
Jim FL

What minimum equity 2 buy Junkers? - Posted by ChrisC

Posted by ChrisC on November 12, 2002 at 17:54:35:

Dear Pro’s -

I understand a 50% equity is desirable, but what in your opinion would be the minimum considered? 30%?

Thank you for your assistance in this matter.