Bowling Green Field Trip

Yesterday, I took a field trip to Bowling Green, KY, about 2 hours down the road.    Bowling Green is much closer to Nashville than to Louisville and is one of the only areas in Kentucky that has continued to grow during the recession.     I am told that while Bowling Green also had housing prices decline and foreclosures increase, it did not suffer the loss of jobs common to most of the rest of the country.   This leaves a healthy market of people who really cannot afford to buy a house but who would like to rent.

My field trip was to work with a client interested in finding rental properties.    My client had found a house about 2000 square feet for sale at about $35,000.     The house was built around 1960 and was situated in a low income area of town.      It had been through the foreclosure process and was owned by Fannie Mae.   

Stop there.   Before going any further, Let me warn you, not to get too excited about finding a 2000 square foot home for $35,000.   Here is why -

• All of the carpet needs to be replaced.  
• The main floor may have rotted away and was replaced with decking strips instead of plywood, so that there was no solid barrier between the house and the crawl space. 
• Water runs under the house.  
• Although the shingles look fairly new, the roof appears to sag and it would appear that the attic either is not properly ventilated or the shingles were installed incorrectly because the shingles were popping up.  
• The gas lines were not installed correctly.  
• The water heater wasn't vented correctly.  
• The kitchen really needs to be completely reconfigured to work correctly because the only outlet for the stove would block almost all of the cabinets.  
• The house does not have central heat or A/C.  There is a furnace of some sort sitting in the middle of a family / living room that doesn't appear to be safe.  
• The vinyl siding had moss or perhaps mildew on it and had several spot where it was cracked or had holes in it.  
• The gutter on one side of the house had apparently been crushed when a tree had fallen on it.  
• The upstairs bathroom is leaking into the downstairs bathroom.   
• All of the windows need to be replaced. 
• A deck on the back of the house has a roof that is leaking and needs to be taken down.   
• Previous owners or tenants had run panelling over existing windows.    
• The ceilings all appear to be old asbestos tile.  
• The utility room may have asbestos floor tile.   

So, welcome to the world of low income housing.    These were just the items that we were able to see in our short visit.  This does not even include any possible electrical or plumbing issues which would not be possible to detect with the water and power off.  

In evaluating a property like this, THE MOST IMPORTANT CONSIDERATION is how much rent can you expect to get for this property.  We were told that the average home in this area would rent for between $500 and $600 per month.   So the questions becomes, how much would it take just to make this place livable?   Then the follow-up question is, would a rent of $500 to $600 per month be enough to justify your investment?

There were a number of things that I would have to do to this property if I was going to live in it. However, those are not necessarily the same concerns of your potential tenant pool.     But if the budget cannot even cover the necessities, there is no reason to spend any time or money on this project.  

In this particular case, although the property was inexpensive, we estimated that it would take $20,000 to $30,000 in additional expenses just to make the property livable.   With those additional expenses, the annual debt service would be about $3800.    Then you would have insurance and taxes and other maintenance expenses for the property.   With an expected rent of about $6000 per year, you would likely be making less than $2000 per year on this property.   

Thanks for reading.  Hope you have a great day.

BTW - If you know someone needing assistance with real estate, have them give me a call.  I specialize in Commercial Real Estate and work with Buyers, Sellers, Landlord, Tenants and Investors.  I handle Office, Industrial, Land, Retail and Investment properties.  Heck, I can even set you up with some help on residential real estate, if you need it. 


ALSO - I am sure that my managing broker would appreciate me clarifying that the opinions expressed here are my own and do not necessarily represent those of Commonwealth Commercial Real Estate, its brokers, agents or employees (other than me, of course.)    Should you wish to offer an opinion, feel free to call me or to put one here in the comments sections.   You should not feel free however to post anything inappropriate or objectionable.   Should I see any such comments, i will exercise my right to delete them.

David

David W. McCoy
Associate Broker
Commonwealth Commercial Real Estate
10444 Bluegrass Pkwy
Louisville, KY 40299

Ofc: (502) 379-6005
Cel: (502) 905-5274
e-mail: DMcCoy@ccre.biz