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Last Updated: May 14th, 2012 - 22:24:01 |
I saw an ad for a four unit apartment building in the local newspaper and called about it. It happened to be owned by a young man who went to school with a couple of my kids.
The building was in a fairly undesirable part of town where I would not normally look for investment property, but the price sounded good. I looked at it and tried not to be discouraged. It was near a historic minority university and also near a teaching hospital. It was a brick building built as an apartment building and not just a converted house. The units were dirty and trashed out. Two were vacant. The tenants were not paying the very low rent, and the owner didn't even want the tenants to know he owned the building. It was under management of a real estate company across the street. The owner had recently bought the property for a lowball price, but he didn't want to own it for long.
The general condition of the building was good - no roof leaks, old but serviceable electrical systems and heating. I wrote an offer for $22,500 which, believe it or not, gave the seller a reasonable profit! I structured the contract so that the seller was obligated to give be a $2,600 second mortgage. I used the normal "escape" clauses just in case.
Then I called a commercial real estate appraiser and paid directly for an appraisal. The report came back with a value of $31,000 as is. Not bad.
I took the appraisal to the bank where the seller had financed the property and got a commitment for an 80% loan. After closings (one with the bank and one with the seller), I left with $3,800 cash and a deed!
The management people were not collecting any rents. I told them to have the tenants move, but thay couldn't make it happen. I fired them and sent notices to the tenants that as of a certain date (about two weeks later) there would be no water, electricity or gas service because I intended to do renovations to the building. They left with no trouble.
I pressure washed the facade and painted the trim. All the apartments were cleaned thoroughly and given new paint and carpet (paid for with the cash from closing). I had to repair one gas floor furnace and maybe replace some locks, but almost everything was cosmetic.
I decided that a name would give the place better identity and more class. A nearby street was named after a former prominent doctor from the area. It was short and recognizable, so my place became The Todd House. It was not long before the name was commonly used around the area.
I doubled the rents and almost immediately rented one unit to a sharp young man who was a pathology tech at the hospital. He had an above-average income for the area and was single and clean. Another unit went to a young lady from a Caribbean country being bribed by the U.S. She had a full scholarship to the university plus a nice monthly stipend that more than covered the rent. She regularly made the deans list, but was not much of a housekeeper.
Then I took it slow because two rents gave break-even cash flow. I had to turn away numerous winos, etc. I did finally rent to an auto mechanic who did not work out too well. (Still have a box of tools he pawned to me) Then there was a call from a local area real estate agent I knew (who, by the way, was a knockout). She asked if I would pay a referral fee for a good tenant and I jumped at it. She brought me a retired gentleman who had graduated from the university in 1952 and who had lived in Pittsburgh ever since until all his friends died off. He returned here to be nearer friends and to read in the university library. He drew a disability payment, was a reliable payer and kept his place neat and clean.
The foreign student moved on, and I had a request from a young man and his girl friend to rent them an apartment. I knew they had been evicted from a place across the street not long before. I asked a local landlord friend about him and was told, "I have rented to people like him when I needed the money." I told the young man (who was a petty criminal, drinker and pot smoker) that I would not rent to him unless I had a positive way of getting his rent. He drew SSI and disability checks. The Social Security office would not send them to my address even at his request because they thought I was trying to rip him off.
We worked it out that he would add me as an account holder of his savings account to which the checks were automatically deposited each month. That way I could take the rent out and leave the rest in for him. This would have been great except that he would use an ATM card to clean out the account before I could access the funds at the teller window! I asked for his ATM card and cut it up! Then he would go to the bank at opening time and take out money before I got to the bank. Finally I worked out with the head teller at my bank to do transfers to my account by telephone request 15 minutes before the bank opened. No more problems!
Things finally settled down to routine. I owned the building for about three years but got a bit tired of driving across town to maintain and manage it. I sold it at auction for a good profit and passed the tenants along to the buyer, including the auto-rent-collection system for my little pot smoker.
This was an adventure in de-slumming a building in a slum-prone neighborhood. It gives me bragging rights for having bought a serviceable building for about $7.50 per square foot. Every landlord has horror stories to tell. It is the wins we like to talk about. Maybe if I write again, I'll tell you about a nice 2 bedroom, den and basement $90,000 home I have with monthly payments of $75.19.
TN Landlord
rhgusn@bellsouth.net
Nashville, TN
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