‘LEPER PROPERTIES’ PRODUCE CASH FLOW
Finding the right properties with good potential for profits and cash flow is the first step for developing a successful investment plan. As you might guess – it’s important to break away from traditional thinking and the average investor crowd. Serious money is made by those who study the marketplace and have the ability to spot bargains that others simply don’t see. You don’t need to buy slaughterhouses in the slums, but you do need to develop good investment eyes. Quite often you’ll find the biggest rewards are off the! Beaten pathway.
Multiple oddball configurations are the kind of properties that many brand new investors won’t touch with a ten-foot pole. These are mostly older non-conforming type real estate. For example; “cluster houses” like my Haywood and Cherry Creek properties. I call them “leper properties”, meaning most investors don’t want to touch them. I own many properties with various building combinations such as a three-unit apartment building, surrounded by 4 cottages and a duplex. My Oregon Street property was an older 4 bedroom family house and a large 2-story duplex with a garage. The property was easy to convert to 5 rental units by making the garage into a 1-bedroom apartment and splitting off a bedroom and bath from the 4-bedroom house. A rear door entrance made the house conversion fairly inexpensive and of course created 5 separate rental units!
Obviously, my basic idea was to purchase three rental units at the regular 3-unit price, knowing all along I would be able to modify them and quickly start earning 5 units worth of income. Oregon Street was an extra special money-maker because the property was rundown and rents were abnormally low when I acquired it. With the conversion to 5 units _ plus my fix-up work, I was able to increase rents from $1000 monthly to $1900. The total job took me just over a year to complete. A short time later I sold the property for more than double the price I had paid.
Combination properties, like the kind I’m telling you about, all have several things in common. First of all, you won’t find them in newer subdivisions – even those built in the last 40 years. Leper properties can be found in the older sections of town or just outside the city limit sign. Today’s complex zoning la~ would obviously prohibit such construction. However, what’s already there today is “grand fathered” in, regardless of current zoning laws, so long as the buildings remain standing. By the way, age is not important so long as buildings are properly repaired and maintained. Many homes in Virginia and Georgia are 250 years old and they cost more today than brand new ones. On the other hand, I’ve seen eleven year old housing projects in Chicago condemned and torn down by the city. Only 11 years old and unfit for occupancy. They say! Believe me, age has very little to do with the condition of housing – or its value.
MY FIRST REQUIREMENT FOR INCOME PROPERTY IS INCOME
From an income standpoint, which I care most about, oddball units command the same rents as newer apartments, sometimes more because they generally offer more privacy. Another very important common attraction is that most older leper units have long been paid for! They have no commercial mortgages to mess with. More often than not. owners can finance the sale. That means, no credit applications, tax forms, loan fees, appraisals and variable rate bank loans. In summary, lower purchase prices, less competition and long-term owner financing are commonplace with these types of properties. If cash flow turns you on, my advice is start looking for leper properties today.
2 Responses to “‘LEPER PROPERTIES’ PRODUCE CASH FLOW”
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Hey Fixer Jay, I have foun da Leper!! Its a 3 unit in my area, that is bank owned and has been vacant for ayear. Its in a nice neighborhood and when fixed up I estimate that annual NOI will be around 20,000. They are asking 69,500 for the vacant 3 unit. I don’t want to make mortgage payments while I get the propert renovated and rented. How do I go about asking the bank for a moratorium on the new mortgage…I plan to put 8-10k down.
Be careful with properties empty that long. If utilities are cut off, meters takes by power cmpany, you must check with building dept. to determine if building is “red tagged”. It might mean the city would demand a building permit and everything be brought up to current building standards (codes). Sometimes buildings are empty for a reason!
2 Ways for Moratorium — Write it into your offer as one of the terms. For example: Purchase price $69,500, down payment to be $10,000 down. Seller to carry back or finance $59,500, with payments of (so much per month), beginning (date) 6 months from now!
Or — Down payment to be $7600. Buyer to pay 6 months of advance payments at closing, $400 each, total $2400. Still same $10,000 arranged differently. Many banks won’t do financing – try anyway.
FIXER JAY