Boarding house investment experience?

[tquinn1021]

I recently came across an interesting property that is one block down from a SFH rental property I have. It is a bank owned building that was last used as a licensed rooming house. The property consists of 12 rooms and two shared baths plus a 1 bedroom apartment with one full bath and a detached garage. Does aynone have any experience with a boarding/rooming house as an investment? If it is as simple as renting out 12 or 13 1 BR apts, there could be good potential. The last time I searched for a tenant for my current property, I had a very good response, so I think the rental market is fairly strong. Its a lower-income area. But I'm not sure if the classicification of "rooming house" carries some other restrictions or requirements. Also, the building is in need of big repairs. Per the Listing Agent:
"The property needs at minimum new kitchen, bathrooms, windows, drywall flooring and paint. Maybe a new boiler and the electrical service seem to be on the small size for such a large building. I know the side porch needs to be reconstructed as well. Other than that it’s a gem!"

Current asking price is $45,000. Previsouly was sold for $255K in 1/2007 and then went into foreclosure late 2010 and bought back by the bank early 2011. This seems like it has potential, but seeing as my only experience is one single-family rental home, I'm having trouble reconciling my lack of experience with my desire to aim big and finally take some serious action that others may be afraid to. As I write this, I realize I need to write my intro as well. As a long-time lurker, I should know better!

 

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[MonTexan]

Have you been inside to check the place out? It doesn't sound like each unit has it's own bathroom and kitchen, so doubtful that you could turn it into individual 1 br apartments. I've got a buddy here in Houston that bought something eerily similar one time...turned out to be a house of ill repute. Could put you in touch with him if you like!

 

[Russ H]

If you are renting SFH's, you're looking at tenants that will be staying w/you for months.

If you're renting a flophouse, you'll have low lifes who come and go, and you'll have a hard time getting them to pay, unless it's 100% upfront (per night).

That's a lot of management.

It can make money if you're into it.

But it's not a cash cow. And as Montexan mentions, the kind of "business" that runs in and out of a flophouse is stuff like drugs and sex. Stuff that you won't be making money on-- but will have to clean up afterwards.

Oh, and be dealing w/the cops all the time.

The big opportunities right now are in HUD and FHA homes-- buying from the banks at firesale prices, cleaning them up to meet FHA, and selling them fast.

I have a friend who found an area that "fit" his profile (ie, lots of homes foreclosed, a good market for buyers w/steady local employment, and prices that fell within FHA guidelines).

He bought, fixed, and flipped more than 20 houses last year.

And he did it part time, while managing a large commercial complex that he owns.

He made anywhere from $5K (worst) to over $50K per house, and all in a few months for each buy/fix/flip.

-Russ H.

PS Oh, BTW, welcome to the fastlane! Looking forward to your intro, but I know how finding a "deal" like this can finally drive you to "de-cloak".

 

[tquinn1021]

Thanks for the responses. House of ill repute, huh? Now that's Fastlane! In all seriousness, I hadn't thought about that aspect of it, I was actually on the other end of the spectrum thinking that it could be a positive place for the community. But you guys are correct in that I would have too many headaches with this type of property, especially without having a very accurate picture of expected cashflows and vacancy rates for a boarding house. I am going to look at it anyway when I go to check on my tenants in a few days. It first caught my eye a few months ago when it was for sale at $220K, so now that it is bank owned and selling for $45K, I feel like I have to see it. Maybe there is some re-zoning potential there. Its so unique that I want there to be an opportunity there, even if there isn't one.

 

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[hatterasguy]

From my experience having seen what a good friend is going through with a rental in a crappy area I wouldn't get involved in low end rentals.

He has had the cops call him at 3am looking for one of his people, they are vacant constantly, always trashed, and you have to be on the spot collecting rent because the $600 they have on Friday will be GONE come Monday!

IMHO your money, time, and effort are better spent on nicer rentals in good properties, in quality areas. They upside is better all around.