How would you justify a $1M duplex that is 100+ years old

How would you justify a $1M duplex that is 100+ years old

New to Real Estate · Salt Lake City, UT · Member since 2017 · 25 posts · 8 votes

My landlord knows that I am interested in his property and he is trying to 1031 his duplex into more houses closer to an area to where he has other properties close by. I have no rental property experience but want to get in the game. I have the income and money to support a down payment and mortgage - could do FHA or 10-20% down.

111 year old duplex I live in - 2/1 layout, upstairs downstairs. Although the second 'bedroom' on the first floor is an awkward layout because its an add-on feature. Good location, house has many issues (not cared for great, asbestos in basement with HVAC, lead pipes most likely, poor electrical system, among many other things) but also has HVAC for AC/heating.

Right now I pay $1,900 downstairs for the larger unit with backyard/hot tub/garden/parking space, and my upstairs neighbor pays $1,250. Internet/cable/water is included in rent. My lease goes into early 2023.

Details are sketchy but he offered it to me this week a $949,000 saying he expects it to go a bit higher if he goes to market. With me there would be no cost of sale on his end with RE commission cost. There is no cash flow with this deal anywhere near this price. Also these multifamily properties have been sitting on the market locally for a long time now with these high prices - the buyers are so siloed since these houses arent really move-in ready and most home buyers want single family. But he told me he wants to get top dollar.

How would you professionals in your wisdom and lessons learned over the years approach due diligence here to build a case for a counter-offer to stick with? I am wondering if its worth getting an inspection of the outside and my unit to get a professionals idea of what's going on with the property. Comparables data isnt too easy for me to get and they dont transact too much from what I have seen. I imagine that this is not an attractive property to too many investors and would need work done on a $1M property - I believe an inspection would uncover a lot of risk, especially on foundation issues being on a fault line too (cracks in walls and all over).

The easy approach I am thinking would be to just share with him that I think we are too far apart in pricing and see if he opens up the door to negotiations.

There are some value add opportunities to improve the property if it was to be sold in the future, and to increase rent upstairs the bathroom could be redone, dishwasher put upstairs, and perhaps a washer-dryer stand up unit (instead of sharing our machines).

Let me know what other questions I can answer - trying to think through this methodically because I like the deal but the price is ridiculous - this would sell well between $700-800 I believe. Maybe below 700 depending on what is going on with the house.

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Real Estate Coach · LandlordSkool.com · Member since 2017 · 113 posts · 90 votes
4y

My two cents. Don't listen to me, but the price is not the biggest issue here, in my opinion. 

You can circle back to price later, but first, talk more to him about his intentions:

"You want $1m for this duplex huh, how did you get to that number?"
* "What about any damage (give examples)?"
* "What is the age of the roof?"
* "Age of HVAC?"
* "Age of water heater?"
* "Age of appliances?"
* "Any foundation problems?"
* etc. You get the idea...

"So, you want to 1031 to buy another deal. Do you have the deal lined up now?"

"How much money do you need for the deal?"

"If you had that amount now, would you still want to 1031 the duplex?"

"I'm trying to understand intentions. What's important to you?"

"If you really don't know the house's value, considering any maintenance and/or damage, maybe you can get an inspection. Or at least consult a real estate agent. Once I know your true underlying reason to sell, with your understanding of the value, we can work out a custom-tailored deal. I'm excited! I know if we work together we can figure everything out!"

--

Once you get to the bottom of everything then you will know what to do. Who knows, maybe you could get a loan for the amount he needs for the downpayment (if it's not $1M), then do owner financing for the remainder over time. Don't be too hungry to make a deal. Be willing to walk away. Explain your terms and if he can't get what he thinks he can, he may circle back to you later. 

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  • Real Estate Coach · LandlordSkool.com · Member since 2017 · 113 posts · 90 votes
    4y

    My two cents. Don't listen to me, but the price is not the biggest issue here, in my opinion. 

    You can circle back to price later, but first, talk more to him about his intentions:

    "You want $1m for this duplex huh, how did you get to that number?"
    * "What about any damage (give examples)?"
    * "What is the age of the roof?"
    * "Age of HVAC?"
    * "Age of water heater?"
    * "Age of appliances?"
    * "Any foundation problems?"
    * etc. You get the idea...

    "So, you want to 1031 to buy another deal. Do you have the deal lined up now?"

    "How much money do you need for the deal?"

    "If you had that amount now, would you still want to 1031 the duplex?"

    "I'm trying to understand intentions. What's important to you?"

    "If you really don't know the house's value, considering any maintenance and/or damage, maybe you can get an inspection. Or at least consult a real estate agent. Once I know your true underlying reason to sell, with your understanding of the value, we can work out a custom-tailored deal. I'm excited! I know if we work together we can figure everything out!"

    --

    Once you get to the bottom of everything then you will know what to do. Who knows, maybe you could get a loan for the amount he needs for the downpayment (if it's not $1M), then do owner financing for the remainder over time. Don't be too hungry to make a deal. Be willing to walk away. Explain your terms and if he can't get what he thinks he can, he may circle back to you later. 

  • Lender · AZ · Member since 2022 · 148 posts · 95 votes
    4y

    I think if you want to get into the game this isn't a good first property to start with. I'm an agent in the area helping a few clients find SFH to house hack and there is much more upside to those.

    Like you said it seems like he may have a pretty high price given the condition of the property and that may be a pipe dream for him but he may not realize it. Sometimes it takes a very long time for a property to sit on the MLS with a lot of the same feedback for the seller to finally understand how much people are actually willing to pay for it.

    If you send me the property I can run a CMA to see what I think the property is actually worth given the condition as well.
    The best decision for you in my opinion would be to find a SFH to house hack that is in much better condition. If you are new this is a great way to learn to landlord and you'll be cutting your expenses.

    If capital isn't an obstacle for you this will keep more money in your pocket earlier and allow you to scale more quickly while learning through a safer investment. You can find something relatively turn key in the area instead of having maintenance issues every couple of weeks that deter you from investing further and sucking out all of your capital.

    Just my opinion.


  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    4y

    @Michael Kundrat

    If rents are $1900 and $1250 this is. It an investment property as you will be cash negative by thousands and thousands of dollars.

    Even if you could get it and finance $500k you are upside down. Now if you want it as a primary residence and want to live in it - cool.

    But for investment and having to deal with lead paint, asbestos etc. You can easily drop another $100k in these properties

    7e investments53 Reviews
  • Investor · Member since 2021 · 591 posts · 695 votes
    4y

    @Michael Kundrat listen to @Chris Seveney --he's 10000% correct: this property doesn't come close to penciling out. 

    Even just eyeballing the numbers for 5 seconds, and I can see that this property would be a complete loser--it's not even close, unfortunately (and that's assuming it's a property with no significant impending capex, when in reality, you're facing serious capex on the horizon--based on your description).

  • New to Real Estate · Salt Lake City, UT · Member since 2017 · 25 posts · 8 votes
    4y
    Quote from @Rene G.:

    My two cents. Don't listen to me, but the price is not the biggest issue here, in my opinion. 

    You can circle back to price later, but first, talk more to him about his intentions:

    "You want $1m for this duplex huh, how did you get to that number?"
    * "What about any damage (give examples)?"
    * "What is the age of the roof?"
    * "Age of HVAC?"
    * "Age of water heater?"
    * "Age of appliances?"
    * "Any foundation problems?"
    * etc. You get the idea...

    "So, you want to 1031 to buy another deal. Do you have the deal lined up now?"

    "How much money do you need for the deal?"

    "If you had that amount now, would you still want to 1031 the duplex?"

    "I'm trying to understand intentions. What's important to you?"

    "If you really don't know the house's value, considering any maintenance and/or damage, maybe you can get an inspection. Or at least consult a real estate agent. Once I know your true underlying reason to sell, with your understanding of the value, we can work out a custom-tailored deal. I'm excited! I know if we work together we can figure everything out!"

    --

    Once you get to the bottom of everything then you will know what to do. Who knows, maybe you could get a loan for the amount he needs for the downpayment (if it's not $1M), then do owner financing for the remainder over time. Don't be too hungry to make a deal. Be willing to walk away. Explain your terms and if he can't get what he thinks he can, he may circle back to you later. 


     I like that idea of getting to the true intentions of the sale and what he is looking to get out of it.

    I approached him mid-year about seller-financing the house to me but he shared that he doesnt want to take a tax hit and prefers to 1031. Not sure if he has the deals lined up yet (mentioned two houses, not one larger multi-family).

    Thanks for your response - very helpful to consider!

  • North Royalton, OH · Member since 2016 · 41 posts · 48 votes
    4y

    @Michael Kundrat

    $1000000 to collect a little over $4000 in rent a month? DONT DO IT!!!! That’s a terrible return on your investment. That’s my 2 cents.

  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    4y

    Let it come to market. You are either right or wrong in your valuation.  But I know getting a $300k discount before they come to market simply isnt happening.

  • New to Real Estate · Salt Lake City, UT · Member since 2017 · 25 posts · 8 votes
    4y
    Quote from @Carl Davis:

    I think if you want to get into the game this isn't a good first property to start with. I'm an agent in the area helping a few clients find SFH to house hack and there is much more upside to those.

    Like you said it seems like he may have a pretty high price given the condition of the property and that may be a pipe dream for him but he may not realize it. Sometimes it takes a very long time for a property to sit on the MLS with a lot of the same feedback for the seller to finally understand how much people are actually willing to pay for it.

    If you send me the property I can run a CMA to see what I think the property is actually worth given the condition as well.
    The best decision for you in my opinion would be to find a SFH to house hack that is in much better condition. If you are new this is a great way to learn to landlord and you'll be cutting your expenses.

    If capital isn't an obstacle for you this will keep more money in your pocket earlier and allow you to scale more quickly while learning through a safer investment. You can find something relatively turn key in the area instead of having maintenance issues every couple of weeks that deter you from investing further and sucking out all of your capital.

    Just my opinion.



    Thanks for the input! I am less interested in house-hacking a SFH to live in with tenants. I am early 30s, WFH, and dont know many people in SLC so it would be renting to randos lol.

    What would you need for the CMA?

  • Lender · AZ · Member since 2022 · 148 posts · 95 votes
    4y

    Trust me I get it I'll be 28 this year as well and wouldn't prefer doing it but it's allowed us to scale much more quickly than we would have been able to in the last few years.

    You can just PM me the address and that should be sufficient.

  • New to Real Estate · Salt Lake City, UT · Member since 2017 · 25 posts · 8 votes
    4y
    Quote from @Chris Seveney:

    @Michael Kundrat

    If rents are $1900 and $1250 this is. It an investment property as you will be cash negative by thousands and thousands of dollars.

    Even if you could get it and finance $500k you are upside down. Now if you want it as a primary residence and want to live in it - cool.

    But for investment and having to deal with lead paint, asbestos etc. You can easily drop another $100k in these properties


     Appreciate your insight - I agree that if it was a investor buying it that it would be a terrible negative return based on current rents.

    I would for the time being buy it and live in it for a period of time (not sure how long, but the plan would be to move out and rent it out and buy another place too - although I am not sure how much rent in my unit, $1,900, could even be increased to make more).

    What are the benefits/risks of having this as a duplex that I live in and then collect a little bit of rent from the upstairs tenant to offset the mortgage and build equity over time - while potentially adding value to the property in-case I want to 1031 it to a 4 plex.

    I imagine that when they list the property, it could sit a while, especially since my lease is through January, and the type of buyer of this would be someone who would owner-occupy and they wouldnt want to be in the upstairs unit.

    Even for me to owner-occupy, the condition of the property is a bit sketchy, but the location is not bad, not great, but not terrible. On a highly visible street.

  • Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
    4y

    @Michael Kundrat don’t know Salt Lake City market but plenty of 100+ year Victorian multis here in Jamaica plain and prices well over 1M. Condos in remade buildings can still go for 700-1.2M

    Unless you have 100k (and I’m being very skimpy) for capex, updates and conversion AND you can split the multi into 2 condos that go for 700 apiece mostly as is you will lose your shirt on this and then some.

    It was actually possible early in this cycle where I live but I don’t see it in what you describe.

  • New to Real Estate · Salt Lake City, UT · Member since 2017 · 25 posts · 8 votes
    4y
    Quote from @Leo R.:

    @Michael Kundrat listen to @Chris Seveney --he's 10000% correct: this property doesn't come close to penciling out. 

    Even just eyeballing the numbers for 5 seconds, and I can see that this property would be a complete loser--it's not even close, unfortunately (and that's assuming it's a property with no significant impending capex, when in reality, you're facing serious capex on the horizon--based on your description).


     Totally agree that the numbers dont check out at all - lots of risk and potential for spend as the building continues to age and problems arise.

    What are your thoughts on living in a building with lead pipes, asbestos, not professional updates/repairs, awkward floorplan/layout, can be a noisy street with old single pane windows, and a lot of other things that go with a 100+ year old house, even if its close to a desirable area?

    If its owner occupied so I am living here and collecting some rent while paying down mortgage (granted in the first many years it will be paying down the interest mostly and not the principal now) does this change your view or thought process. I wouldnt mind living here as primary residence if the deal made sense.

  • New to Real Estate · Salt Lake City, UT · Member since 2017 · 25 posts · 8 votes
    4y
    Quote from @Bernardino Graziano:

    @Michael Kundrat

    $1000000 to collect a little over $4000 in rent a month? DONT DO IT!!!! That’s a terrible return on your investment. That’s my 2 cents.


     LOL agreed - and its not even close to $4K, its like $3,200 haha. Thanks -

    Is there anything that I could be missing or not thinking about related to potential upside/development of the surrounding area that could continue to drive prices higher for 'speculating' on the building? thanks!

  • New to Real Estate · Salt Lake City, UT · Member since 2017 · 25 posts · 8 votes
    4y
    Quote from @Russell Brazil:

    Let it come to market. You are either right or wrong in your valuation.  But I know getting a $300k discount before they come to market simply isnt happening.


     Thanks my man! I think if it comes to market and sits for 60, 90+ days (especially since the building has two active leases and mine isnt up until 2/1/23 when its bitter cold in salt lake) those are other obstacles that make it tough to sell - and probably make it better for me if we see that there isnt much real action at the prices expected.

    I also may ask them what they will consider if once it goes to market and they get offers below asking, what will they do? Because if they do entertain lower prices ($700K-ish?) I would want to know about that to factor out numbers more.

  • Lender · AZ · Member since 2022 · 148 posts · 95 votes
    4y
    Quote from @Michael Kundrat:
    Quote from @Bernardino Graziano:

    @Michael Kundrat

    $1000000 to collect a little over $4000 in rent a month? DONT DO IT!!!! That’s a terrible return on your investment. That’s my 2 cents.


     LOL agreed - and its not even close to $4K, its like $3,200 haha. Thanks -

    Is there anything that I could be missing or not thinking about related to potential upside/development of the surrounding area that could continue to drive prices higher for 'speculating' on the building? thanks!

    If this was going to be a BRRRR maybe but what you're describing doing IS house hacking. Generally the whole point of this strategy is to purchase a property with little money down utilizing primary residence loan products. If you have the capital why not buy something functional in the area?

    when I was describing house hacking earlier I mentioned SFH's with mother in law apartments. These rent just like duplexes but are generally less expensive and can be more desirable for potential tenants.
  • New to Real Estate · Salt Lake City, UT · Member since 2017 · 25 posts · 8 votes
    4y
    Quote from @Jonathan R McLaughlin:

    @Michael Kundrat don’t know Salt Lake City market but plenty of 100+ year Victorian multis here in Jamaica plain and prices well over 1M. Condos in remade buildings can still go for 700-1.2M

    Unless you have 100k (and I’m being very skimpy) for capex, updates and conversion AND you can split the multi into 2 condos that go for 700 apiece mostly as is you will lose your shirt on this and then some.

    It was actually possible early in this cycle where I live but I don’t see it in what you describe.


     Great idea, never thought about 're-zoning' (not sure if thats the term) the property to create two condos to sell separately. But trying to command even more for the property after that would be really hard just based on the layout and upstairs/downstairs relationship.

    The property is not as large as victorian houses that I would think of being chopped up into a large MFU building. Downstairs unit I am in is like close to 1200 sq. ft. (because of an addition room added on) and the upstairs is smaller maybe closer to 1,000 sq. ft. so in total I approximate the house at 2,200 sq. ft. it sits on a decent yard for a city at like .10 acre. Fenced around the property.

  • New to Real Estate · Salt Lake City, UT · Member since 2017 · 25 posts · 8 votes
    4y
    Quote from @Carl Davis:
    Quote from @Michael Kundrat:
    Quote from @Bernardino Graziano:

    @Michael Kundrat

    $1000000 to collect a little over $4000 in rent a month? DONT DO IT!!!! That’s a terrible return on your investment. That’s my 2 cents.


     LOL agreed - and its not even close to $4K, its like $3,200 haha. Thanks -

    Is there anything that I could be missing or not thinking about related to potential upside/development of the surrounding area that could continue to drive prices higher for 'speculating' on the building? thanks!

    If this was going to be a BRRRR maybe but what you're describing doing IS house hacking. Generally the whole point of this strategy is to purchase a property with little money down utilizing primary residence loan products. If you have the capital why not buy something functional in the area?

    when I was describing house hacking earlier I mentioned SFH's with mother in law apartments. These rent just like duplexes but are generally less expensive and can be more desirable for potential tenants.

     Is that like a basement apartment that people often rent out as well?

    Yes, I would treat this likely as owner-occupied house hacking then - although not sure if I would do likt 5% down or more to reduce the mortgage, like do a conventional 20%.

  • Lender · AZ · Member since 2022 · 148 posts · 95 votes
    4y
    Quote from @Michael Kundrat:
    Quote from @Carl Davis:
    Quote from @Michael Kundrat:
    Quote from @Bernardino Graziano:

    @Michael Kundrat

    $1000000 to collect a little over $4000 in rent a month? DONT DO IT!!!! That’s a terrible return on your investment. That’s my 2 cents.


     LOL agreed - and its not even close to $4K, its like $3,200 haha. Thanks -

    Is there anything that I could be missing or not thinking about related to potential upside/development of the surrounding area that could continue to drive prices higher for 'speculating' on the building? thanks!

    If this was going to be a BRRRR maybe but what you're describing doing IS house hacking. Generally the whole point of this strategy is to purchase a property with little money down utilizing primary residence loan products. If you have the capital why not buy something functional in the area?

    when I was describing house hacking earlier I mentioned SFH's with mother in law apartments. These rent just like duplexes but are generally less expensive and can be more desirable for potential tenants.

     Is that like a basement apartment that people often rent out as well?

    Yes, I would treat this likely as owner-occupied house hacking then - although not sure if I would do likt 5% down or more to reduce the mortgage, like do a conventional 20%.


    That is correct. It would be the same setup you are living in currently except not split utilities I have helped others do this and done this myself. Much better option compared to living and investing in a 100+ year old building.

  • New to Real Estate · Salt Lake City, UT · Member since 2017 · 25 posts · 8 votes
    4y

    Btw - this duplex is confusing because on the county assessors website it is listed as a single family residence, but the building has two meters for electricity. Although the current landlord covers water (not separately metered), cable/internet, and trash.

    So I am not sure if this is a a true duplex or a SFR even though there are two meters. Not sure how to totally validate this.

    Interested that no one is too focused on having me have an inspector look at the building to see what is up to counter-offer - what if I am totally wrong about the condition of the property? Although I have lived here for 18+ months.

  • Karen MargraveBusiness Member
    Moderator
    Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
    4y

    Sounds like a can of worms. It's priced too high based on rents, and the work that apparently needs done. If a place were 100 years old but had been impeccably maintained, that's one thing, but a major fixer, with asbestos, probably lead paint, etc. would be a money pit. Walk away. Just because you can do something doesn't mean you should! 

  • New to Real Estate · Salt Lake City, UT · Member since 2017 · 25 posts · 8 votes
    4y
    Quote from @Karen Margrave:

    Sounds like a can of worms. It's priced too high based on rents, and the work that apparently needs done. If a place were 100 years old but had been impeccably maintained, that's one thing, but a major fixer, with asbestos, probably lead paint, etc. would be a money pit. Walk away. Just because you can do something doesn't mean you should! 


     thanks for the input! Very much appreciated, and your are correct - the house does have lead paint as well! haha

  • Jordan MoorheadBusiness Member
    Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
    4y

    I can't see how this would be a good househack or a good rental personally. Let someone else buy it and find something different.

  • CA · Member since 2014 · 244 posts · 47 votes
    4y

    @Michael Kundrat

    Unless any of the issues scares you, It Sounds like a great deal. you got a good list prepped already, maybe be get the inspection done and make offer (20% less than what you feel is justified )

    Seller obviously is aware of most of the points you mentioned, shouldn't be too tough to negotiate.

    Anyway, there not much good locations left in US to give you cash flow from day 1.

  • Patrick DruryBusiness Member
    Real Estate Agent · Columbus, OH & Cleveland OH · Member since 2021 · 1k+ posts · 2k+ votes
    4y

    @Michael Kundrat
    You should reach out to an agent in your local market that works with investors if you are unfamiliar with comps in your local market/ submarket and ask them to send some over. If you want an owner-occupant duplex that will cash flow, this will just not be it. 

  • New to Real Estate · Salt Lake City, UT · Member since 2017 · 25 posts · 8 votes
    4y
    Quote from @Ron Singh:

    @Michael Kundrat

    Unless any of the issues scares you, It Sounds like a great deal. you got a good list prepped already, maybe be get the inspection done and make offer (20% less than what you feel is justified )

    Seller obviously is aware of most of the points you mentioned, shouldn't be too tough to negotiate.

    Anyway, there not much good locations left in US to give you cash flow from day 1.


     Thanks! I agree and would, but the landlord has mentioned wanting to get top dollar. So my thinking is that they wont want to budge until seeing what happens when its on market since the last year+ has been an expensive market with sales going for more than asking (not as much in multi-family, but the comps hes thought of are all single family).

    He has had the 900K number on his mind since the beginning of the year and wants top dollar - you're thought is very logical and could lead to a quicker and less friction in a sale (especially to a known interested buyer like me) but they are trying to get a big sale when the house isnt in great condition (exterior as well) - maybe its because I moved here from California where I was living before salt lake haha!

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