74 Unit Section 8 MN

2 property portfolio, both 37 units in SE MN.

Both of these properties are elderly HUD properties, with all 1 bedrooms.

Long term owner that was not actively involved with direct oversite of operations leading to higher vacancy and higher expenses.

Being a Section 8 HUD property there is a contract with HUD. This is where HUD sets the rents based on market rents and the amount of amenities that are provided to the tenants. The seller was renewing annual one year contracts, vs 10-20 years contracts which is what HUD prefers. Because of this the current rent levels were ~20% lower than what they could be, additionally with adding some amenities for the tenants, the rents could be increased even further. Prior to purchase we negotiated with HUD to achieve higher rents a few months after closing, and additionally higher rents again after adding amenities for the residents.

Quick summary of some other improvements:

At purchase there was 2 part-time on-site managers. Immediately we transitioned these on-site managers to the office staff of our management company. With this setup, the office staff running the building is included in our monthly management fees, rather than the management fees and secondarily paying the on-site managers to do the same work.

A few other changes
—> Install LED lighting throughout the property
—> Renegotiate lawn/landscaping contracts with the current providers
—> Implement better systems for maintenance/unit turns to continue to keep occupancy high.

Purchase Details:

Price: $1,630,000
Occupancy: 90%
Monthly Revenue: $36,000
NOI: $100,000
Appraised value: $2,190,000

Projected Financials:
Occupancy: 95%+
Monthly Revenue: $50,000+
NOI: $240,000
Valuation at 9 cap rate: $2,660,000+

Equity generated: $1,000,000+