Almost Milwaukee pricing

[Roy N.]

I went on a road trip today to look at a couple of 5 & 6 unit properties about an hour from me and came home with a duplex. {Well actually, I left the duplex where it has sat for the last 80 years and just brought the accepted offer home}.

The bank - a local credit union - has had this property for over a year, but decided to drop the price late last week - to a level not seen in 25-30 years around these parts.  

We put in an offer over the weekend and walked the property this morning - since I was going to be in the area looking at multis anyway.  Someone allowed the oil to run out and the radiator lines froze and split in a couple of places - but miraculously little water damage.

When I ran my numbers I allowed for a purchase of up to $30K with renovations of 80K for an all-in of $110K.   Comps in the neighbourhood indicated the renovated property should sell for $140 - $150, but it will also rent for $1400 - 1500/month.  I'm leaning towards the rehab and rent ... unless the realtor brings us a "you can't refuse this" offer.

There were multiple offers on the table when we went in, so we made an offer of $26K and sent a $15K deposit.  The lender was back to us in four hours (before their submission deadline), which tells me we were too high and could have gone in 4K less and still got the property.

After walking the property this morning, it needs a lot of work but less than I was anticipating:

1) Electrical: Entrance to both units needs to be separated and the "half story" in the upper unit still has active knob-and-tube.  I am assuming the entire upper unit (as a minimum) needs rewired, though I could not find active k-n-t on the other levels.

2) HVAC:  At this point it is unclear if the boiler is functional, but I am assuming it froze and cracked.  It appears the upper unit and lower unit are on separate zones, giving us the option of installing two smaller boilers and retaining the existing hydronic plumbing and radiators (provided there are not too many split pipes).  If we remain with hydronic heat it would likely be electric boilers as I do not believe natural gas is available in the neighbourhood ... nor is it any more cost-effective here.  It is equally probable we will remove the existing hydronic lines and radiators and install heat pumps with electric resistance auxiliary heat.

3) Plumbing:  The sewer main is cast iron, as is the main stack, but most of the smaller runs are ABS.  We will replace the internal portion of the sewer main and have the lateral to the street scoped {hoping for no surprises}.  Supply lines are all copper.

4) Envelope:  The house has minimal to no insulation and the windows and storms are all original.   Depending on what we decide to do with the current floor plans - the kitchens are tiny (upstairs is 8x8) - we may take all external walls back to the studs and properly insulate and air-seal the envelope (likely with closed cell foam as I expect there to be limited wall cavity space).   This would make it easier to rewire the house as well.

5) Garage addition:  There is a 1.5 car garage with a "non-conforming" bachelor apartment in the loft overtop.  However, the flat roof has been leaking for 6-12 months and the apartment is a loss.  My initial impression today would be to tear off the entire addition - I'll look at it more closely when we take possession.  Someone in the past had went through the effort to have the lot subdivided and the garage sits on a different parcel from the house.   Removing the garage would also provide the opportunity to building an in-fill unit on the other half.

I need to develop a detailed plan and estimate, but at first blush, I am thinking we can carry out an energy efficiency retrofit  on this property and be closer to a 60K price tag rather than the 80K used in my purchase analysis.

If we decided to come down on the more common and, IMHO, slumloard approach to rentals, we could skip the air sealing and insulation replace the windows, put electric baseboards in all around to unload the {still high} heating costs on the tenants and call it a day with a 30K renovation ... but that is unlikely to happen.

Evan sticking with our normal level of energy efficient renovation, we should come out the other end of this one either with a sale and 30 - 40K in our pockets or a rental where we have refinance all our our capital back out.