Would you buy this duplex? And how?

Question

I have the opportunity to buy a duplex for $148,000 and the current tenants pay $750 on one side and $800 on the other. There is no HOA, and tenants pay utility bills and taxes are about $200/month. Bones of the house are good, but cosmetically it hasn't been updated in years, AC is 12 years old, roof is 5 years old. Would you buy this?

We are trying to go ahead and buy this. My next question is what would be the best way to get the down payment? I have a couple of retirement accounts that are not making much in the stock market so we are looking into pulling the $30k we need for it (my lender can give 15% down payment). Or we could ask a friend that we know has the cash and the interest in investing and we could split the down payment in two, or buy it together as partnership?

Corby Goade · Answer

Cash flow numbers are market specific and whether they are acceptable or not completely depends on your goals and plan for the property. Personally, I would not pull money out of retirement accounts- depending on the structure and type, you could be paying a penalty and income taxes, most of the time it's difficult to justify that and make it up on a deal.

Do you own your own property that you could pull equity from for the down payment? If not, I'd explore partnering with a friend and mitigate your own risk while you learn together.

Good luck!

Robert Leonard · Answer

@Veronica Duran Welcome to BP!

It depends what your strategy is, but I personally would not buy this property at $148k. My analysis shows that it will NOT cash flow, and therefore have a negative cash-on-cash ROI. The IRR is low, and the cap rate is below my threshold (although cap rates aren't generally used for non-commercial properties, it is still an interesting metric to consider). Also, I definitely would not want to have my capital/cash stuck in this deal. It likely won't be able to be refinanced and have the cash taken back out, so your capital would be stuck in the property.

The property would have to be purchased closer to $50k for me to be interested in it, based on the numbers you've provided.

A screenshot of my analysis is below:

I'm happy to answer any questions you have - I can also send you my spreadsheet/analysis if you'd like, just send me a PM. Hope this helps!

Robert Leonard