Hello fellow investors. Im looking for a shove in the right direction. I'm fairly green and need help with the numbers.
I found a duplex that the seller is willing to sell on land contract. The purchase price would be 250k. If I put 20k down he will finance for 3 years at 5%.
Gross rent is at 2390 per month. I found expenses per year to be heat-3000(paid by owner), snow removal-1050, water/sewer-1150, insurance-800, taxes-5600
After I take away debt and other expenses Im left with a positive cash flow of $174 monthly.
The property is in a good area about a mile from the capital and only two doors down from me. Newer roof and siding. Interior is on par or better than other rentals downtown. Vacancy rate is very low.
Any help or advice is appreciated.
Finding a seller who is willing to carry can open up doors to great investments.
Looking at these numbers, I'm guessing there is either a type (he's carrying for 30 years, not 3 years) or a ballon payment by the end of 3 years. 20k down on a 250k leaves the seller carrying $230,000. For only 3 years at 5% that is a monthly payment to the seller of $6,893.31, and this far more than the $2,390/month rent
It would be for 3 years with a balloon payment. I came up with a a monthly payment of $1250
What about a monthly budget for repairs, reserves, vacancy, turnover cost? $174 isn't much to handle all these plus a positive cash flow.
Also how many years is the heat cost based off of? heating cost can be a killer for cash flow. Anyway you could require tenants to pay for their heat?
Throwing your numbers into the 50% rule looks like you would net a negative $55/month.
I would ask for the last few years of the P&L. If the annual average of repairs, turnover, etc. costs are anything more then $2,088, based on the other expenses you listed your cash flow is going to be negative.
Margins look a little tight for me. That being said if you can change the heat like a mentioned that could change everything.
There is only one furnace. Is there a way to have the two units split the heat without adding a furnace?
Not sure. If you had to the go the route of a new furnace depending on the type of furnace needed to serve the unit i would think with a annual reduction of $3,000 in expenses it would pay for itself relatively quickly.
Possibly ask the current owner for credit of $____
to purchase separate furnace.
Interest rate sounds really good especially
for Madison property.
Negative cash flow, I’m not feeling at all.
@Brandon Turner rule is $100 minimum per door each month.
I have seen others mention $150 - $200 per door each month.
( cashflow wise )
As a madison wi duplex owner, I can tell you that you can find better deals out there. The market downtown is brutal, if you look on the west, or north side of town you can do much better. I can think of 2 examples on the west side right now (pm me if you would like specific examples).
As a financing side note: If you have good credit you can find conventional loans at 4.625% right now with 25% down (pm me if you would like to be referred to my source).
Thanks for the input everyone. More than likely Im going to kick this deal to the curb and start searching a little further from downtown where there isn't as much competition
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