$1 Million Dollar Flop in Baltimore. Where did I go wrong?

Superrich is this your first deal? Seems like a big deal for a newbie. If it is a high crime area I would stay away. Call the police on a non emergency line and get the crime reports for the area. For a commercial property you want to know the cap rate.

You said it was 20 units in 5 buildings, So is this 5 four plex buildings?.
Anyway the way to get all the information on the deal is to submit and then both parties sign a letter of intent (LOI) In a commercial deal you use the inspection period( 30 to 60 days) to request, receive and verify the rent rolls, bank statements, vendor agreements, building conditions and engineering reports Etc. Etc.
Never, never, NEVER buy or negotiate on what a seller says they could get (blue sky) if they raised the rent. They are trying to charge you extra for something they have not done! Buy on existing NOI (net operating income) Rent minus expenses. Buy on cap rate and cash on cash return.
Negotiate earnest money due at time of inspection period completion if you can.(rare)Otherwise you will need earnest money to get the LOI signed. Find a private money lender to fund this deal.
Depending on the price and occupancy a ruff area can work. Section 8 renters are money guaranteed!
LOTS of things to consider and put in place to do a multi family deal with minimal risk. DUE DILIGENCE!!

Hope This Helps,

Michael Mangham
MD Home Acquisitions LLC

Thanks Michael for your wisdom. To have crucial/vital step by step instructions are invaluable so thank you from all of us.

High Crime areas here in Baltimore depends on Blocks. It may be in one particular Zip Code is a very high crime in total but everything depends on the block. I'm not sure if that's also the case in some other Cities. Try to ask him what's the CAP Rate then thru that, you can compute the Estimated Market Value of that property. EMV= NOI/Cap Rate. NOI (Net Operating Income) is determined by subtracting Vacancy amount and operating Expenses from propety's gross income. I'm telling you this but i'm not sure if you did mentioned if the property is vacant or acupied. But I believe it should be your next approach. I agree with Michael. Blessings to all. LA

Try these guys: Hard Money Bankers, LLC - www.hardmoneybankers.com
709 Frederick Road #2, Catonsville - (443) 539-8282

Catonsville, MD is very near Baltimore. I am not a fan of hard money, however, if this is a route someone takes, then that is their choice.

Jimmy B

Irababao has a good point. Cap Rate is a good starting point. When discussing cap rates, the deals with the lower cap rates, meaning 6,7,8, are prime properties. This means that the property is full or near full capacity wise, is in top condition and will come with a higher price tag.

The higher the cap rate, the worse the property. The vacancy level/rate is empty or near empty, does not generate top rents and is really troublesome.

Experienced investors will buy these properties, turn them around, get the cap rate low and then sell the property when the property is prime and sometimes triple their investment.

I don't know the seller, but I would say that she senses your the only buyer interested. I would point that out to her. Her willingness to carry 50% of the purchase price is not out of a charitable heart.

She may be playing hard ball to see how serious you really are.

Watch out for pro forma figures!!! Sometimes a seller will provide this to you and you do not want this!!! Pro forma is a strategy often used by realtors and sellers where they calculate todays numbers based upon past years performance when the property may have been in prime condition.

Yesterdays great performance means nothing today. You want current rent rates and expenses.

If she refuses, then ask her if she is giving away free apartments because you know a bunch of people who need a free home. When she says of course I am not doing that, then say to her, well then if that is the case, then you can provide me with the current rents and expenses.

There is something here that this seller is holding back on, this should be a red flag for you. When Jeremy and I negotiate a deal with owner finance, we always tell them that we shoot from the hip and hold nothing back and we expect the same from the seller or the deal is dead. My gut tells me that there is more here than meets the eye. Proceed with caution or back out. Just my 2cents for you to consider...Jan

Not too familiar with Baltimore other than 'The Wire' and going downtown one time for some seafood and an Orioles game, but if it seems fishy, then it is fishy.

If you've got money to burn and you know its a high crime area that you believe or know is in the stages of gentrification and revitalization, then I say go for it if its a long term investment. But other than that, why rishk getting shot when you're about to pick up your rent???

I am thanking you for your advice and support. I will keep you informed as I move forward. Knowledge truly is power!