High rental $ on state group home - Posted by Tim (CT)

Real Estate Investing
1

Posted by GL(ON) on February 22, 2002 at 19:24:28:

I meant, if the state ceased to rent the place and their wards moved out, it would still be OK because you are buying at a good price and would not lose out.

In the meantime it is a profitable deal at a rental of $2400 per month.

So either way you are covered.

You should check out the lease in any case. Remember if you buy the place you are bound by it so you should know what it says. Not to do so would be the same as signing a contract without knowing what was in it.

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High rental $ on state group home - Posted by Tim (CT)

Posted by Tim (CT) on February 21, 2002 at 17:46:33:

I have an opportunity to pick up a property that is currently being rented by the state. The state has put 3 mentally retarded ladies in this home to live. They have 24 hr. supervision by someone from the state (3 people at 8 hour shifts). The property started off as a typical raised ranch (3 bed. 1.5 bath) and has since been re-done by the current owners to have a 3-car garage, an in-law suite, a total of 4 bedrooms and 3.5 baths all on 2/3 acre of land along with a few other nice things. Total sq. footage is about 3500 (big raised ranch!!).

They are getting $2,400/mo for rent (in an area where raised ranches get about $1,300/mo), and the state pays for everything (i.e. - snow removal, mowing the lawn, city water, etc.). The only thing the current owners have to pay for is their mortgage payment any repairs that need done where the tenants did not cause the damage (i.e. roof, electrical, furnace, etc.). If the tenant sticks something down the toilet and it floods and damage occurs, the state picks up the tab (actual example).

The owners live 500 miles away and have been looking to sell it for at least 9 or 10 months (probably longer but that’s when I came into the picture). Just yesterday, I pursued the property vs. just looking at it from the sidelines. They started off with an asking price of $199k and through very little negotiating I’ve gotten them down to 180k. They’re trying to tell me there’s another person that has offered just under 180k. I don’t believe this.

My line in the sand is 172,500. I could go a little higher than that (175k) but I’m going to stick to my line. With that number, this property gives me about $700/mo positive cash flow (and, maybe even a little bit more - I’m checking out a couple of figures I have). I think that’s pretty decent. Especially, if I know the tenants are going to take care of the place and I don’t have to do anything (btw, the furnace and roof are both less than 2 yrs. old). My resale value on a 3,500 sq. foot house is easily over 200k and probably pushing 240k. (I will be doing comps on this soon but I know it’s way over the 175k I would be paying).

Sorry, so long-winded, but the question I have is has anybody else picked up a property and rented it out to a state agency such as this one? If so, how has it gone? I’m a little leary about it just because it is the state I’m dealing with and I can’t imagine they would move quickly on anything that would need to be done. But, like a section 8 tenant, I know the check will be there every month. Also, they say that want to have the ability to be able to purchase it 3 or 4 years down the road. This sounds like a L/O deal but I don’t believe any paperwork has been done. If I do get into this deal, I’ll make sure the correct paperwork has been prepared and signed.

My biggest goal for this place is get some extra help in paying back a line of credit I have out (about 37k). With this property and my other one, I’ll be able to pay this off in about 20 months. So, in 3 years time or so when I go to sell, if I can only get 175k or 180k my thoughts are that that’s fine. I’ve still used this property for 3 years to payback a debt that I’ve incurred for all of the properties I have.

Again, sorry so long-winded but I wanted to give some background. Any thoughts or comments would be appreciated.

Thanks.

3

Re: High rental $ on state group home - Posted by Denise

Posted by Denise on February 23, 2002 at 20:06:06:

I work for The Dept. of Mental Retardation, I may be able to help you with questions.

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Re: High rental $ on state group home - Posted by GL(ON)

Posted by GL(ON) on February 22, 2002 at 09:40:32:

I’d buy it in a second. How long is the lease? That’s the only reason I can think of that the owner would sell.If the lease has only a short time to run and they are moving out. But you say you could sell it for more than you are paying anyway so what’s to lose?

They might renew the lease (at a higher rental) when it does run out. By the way with a lease like that to a government agency, you should have no trouble getting a mortgage even if your credit stinks.

5

Re: High rental $ on state group home - Posted by brian

Posted by brian on February 21, 2002 at 19:16:44:

i have a 12 unit property rented out to the state for reforming prisoners. people right out of state prisons. they pay about $450.00 per unit while rental comps on such apts. in the area $600-$675. doesnt sound too good so far does it? but it is…

they handle all rental collections, screen all tennants very carefully, repair all damages caused by their people, pay all utilities (water, etc.), and all of their people must attend school or work full-time.

they have been renting this from me for about 1 year now on a 3 year lease and the apts actually look better now than when i rented it out to them. and w/ this agency i have absolutely no vacancy rate on a 12 unit and theyre never late w/ rent.

i wouldnt want to rent it out to anyone else.

best of luck.

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Re: High rental $ on state group home - Posted by Tim (CT)

Posted by Tim (CT) on February 22, 2002 at 11:02:40:

I’m not sure how long the lease is for. They claim that they and the state agreed to have a discussion after the third year (another 1.5 years away) to determine what the next course of action is going to be. I’m not very comfortable with that especially if it’s not in writing. I need to get all of this information but I haven’t had an opportunity yet.

The current owners moved out about 1.5 years ago and the state came in shortly after they moved. They claim the $2,400 doesn’t cover the mortgage because they bought in the early '80’s and the interest rate is high. And, now since they’ve moved 500 miles away and have a new home they don’t want the two mortgages. They said they cannot sell to an owner-occupant because the state is currently renting it. They must have a contract.

Again, I know I probably won’t make much on the back end of this deal but the monthly cash flow is pretty good especially for my time involved.

Any other thoughts are appreciated.

Thanks.