Posted by Mark (SDCA) on April 11, 1999 at 15:16:59:
I appreciate your comments. Believe me, I DEFINITELY respect this deal. In the past I have always had a “safety cushion” in that the number of units I was working with were small enough that I could carry the property completely vacant for a few months if necessary. That really is not true with this property.
Here is the unit mix:
38 1 bedrooms (1 bath) @ 375
3 2 bedrooms (1 bath) @ 450
1 studio @ 300.
(The studio is really weird. The front door is a sliding glass door. I am not surprised it is vacant but I am sure we could get it rented for SOMETHING.)
There is a building on the same street which a) is not as nice and b) doesn’t have on site parking (street only). Its rents are 365 for 1bd/1ba and 290 for studio. Frankly, I wouldn’t count on a lot of upside in the per unit rent. The upside is in filling the vacancies. I spoke with 2 tenants and they both said that there was no problem with the neighborhood. One had lived in the complex for 2 years, the other 3. So people WILL stay if you can just get them in. The 2 complaints were 1) the gates to the carports don’t work and 2) bugs. I can’t say I am surprised at all about #2 in a complex of that size and income level.
This is absolutely true (about the deferred maintenance). And definitely any offer would be made subject to inspection. The seller says that the vacancies need only cosmetic repairs. Obviously, that would need to be verified.
I think the vacancy problem is combination of both- ie that the entire town has somewhat of a chronic vacancy problem. But also that the owners just aren’t being pro-active enough. And actually it looks to me like the property would carry itself even with the 28% vacancy they currently have. Obviously, that is neither the desired nor an acceptable outcome. But it looks pretty good from a “downside” point of view.
I don’t think that I am smarter than the seller. However, I do feel that I would be more motivatd to turn this property around. Partnerships are renowned for going sour; getting 2 partners to agree about anything is tough. And I have been in a situation similar to this (on a much smaller scale) and did get the property fixed and fully rented. So I am not as worried about that aspect as I am about where the money is coming from.