Posted by Jim FL on November 12, 2002 at 18:19:11:
Chris,
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.
Anyway…
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.
HTH,
Jim FL