Duplex description question

7 Replies

Hello all,

I have a few questions. I am currently reading a description on triplex that has been recently made available. I like to see what’s for sale every now and then as I am still in the process of saving enough money to buy my first property.

Anyway, The description says "Performa CAP rate over 9%". What exactly does that mean?

The property is only 25% occupied, but he says that all bills are paid by the owner. That only means that for the current tenant correct? So if a new tenant were to move in, he would have to by the new terms since a lease is being signed?

He also says a survey is not available? What does that mean exactly.

Thank you so much in advance and I apologize for my arrogance. Like I said it’s been a tough road trying to save money enough money to get in this game comfortably so I’m trying to learn every thing I can.

Hey @Juan Alvarez , Pro Forma CAP rate is his projection of what returns the triplex would provide IF it was fully occupied and at market rents. Always run your own numbers (underwriting) because there are frequently mistakes and sometimes these numbers are inflated to make the investment look better to a casual observer.

Not sure what your question is for the next paragraph.

A survey is performed by a professional land surveyor which tells you the dimensions of the lot and if there are any encumbrances or issue with the placement of improvements on the lot. You'll want to have a survey done before purchasing as part of your own due diligence.

Keep educating yourself, nothing wrong with asking, there's tons of free info here on BP and on the podcast!

@Juan Alvarez

Don't ever be sorry for asking questions. That's why we are all here. We all started in the smae spot you are at right now.

Using the search feature in this group has provided me with some great insight when I haven't understood a phrase. That's always a good place to start. I'm not saying don't ask I'm offering another avenue of research.

Pro-Forma translated to english just means what the property is projected to do. So in this cast if the whole property was rented out and it sold for the asking price it would return 9%. It's a ploy brokers use to get your attention. The only Pro-Forma I ever pay attention to is my own using numbers I came up with from my own knowledge and resources.

Not sure how a tri-plex is at 25% occupancy. There is either one apt rented therefore 33% occupied (1/3=.33) two apts rented (2/3=.66) or three rented in which we would be at 100%. 

All bills are paid by the owner sounds like the owner is paying water/sewer/gas/electric/ so essentially the rent includes the utilities. Sometimes in MF you pass off the cost of the utilities to the tenant through either the units being metered for the individual utility gas/water/electric or you implement R.U.B.S (Ratio Utility Billing System) it's a way to charge back the utilities to your clients when the property is master metered (it only has one meter for the entire property). 

Every single property in the country has an official survey done to very specifically mark out the property lines. Sometimes the survey is available and the seller will give it to you. In this case it is not and the bank may require one. It's no big deal just a added cost during Due Diligence (DD) but something that should be done as you want to make sure all of your improvements are actually on your property.

Enjoy your journey, it's going to be a good one.

Be Unstoppable

@Juan Alvarez

Yes it's possible to have a meter for each unit, for each utility. So in your case of a duplex you would have two electric meters, two water meters and two gas meters.

Now with that being said you would also need two electrical panels on the inside of the house with separate wires running to each unit. Separate gas lines running to each unit, etc. Usually this is not cost effective unless you are going to do extensive work on the property and as mentioned everything must pass inspection. Its a bit costly but allows you to lower your expenses and have less paperwork. More often then not it's more cost effective to implement R.U.B.S. If you are looking to recoup those expenses. 

It's good to see you are out there building out your knowledge. I've come across way to many people that have purchased on Pro-forma for example and have gotten burned. Keep pushing forward.

Be Unstoppable!