My POTENTIAL First Deal - Questions

8 Replies

I found this deal on Craiglist. What do you guys think?

Its a couple hours south drive of where I live but most multifamily properties near me (whatcom county, WA) don't come close to the 2% rule (or even 1% for that matter)....

It is a duplex. Has two 3 bedroom units. Owner says he is getting $1850/month in total rent... no leases in place but supposedly have been long-term tenants

Asking 138K ... Hopefully could get 20-25K off that=)

2033 S 8th St , Tacoma, WA 98405

Only downside I really see is the crime rate is pretty high in the area... Any locals near there that know the area better?


Link to Craigslist ad: http://seattle.craigslist.org/tac/reo/4503191674.html

Link to Trulia: http://www.trulia.com/property/3014962677-2033-S-8th-St-Tacoma-WA-98405#photo-1

Google Street View: https://www.google.com/maps/@47.253688,-122.464867,3a,37.5y,329.12h,90.93t/data=!3m4!1e1!3m2!1ssm4ArYjocV2jeuwnRwGAXQ!2e0!6m1!1e1

Disclosure I don't know the area in any way and crime rates can often times have a bigger factor on rental income but from a numbers standpoint it looks good. We would need to know more information like costs of repairs needed, annual taxes, insurance, closing costs and how you will buy the house (conventional, cash, investor financing, etc). However if you can buy around $115k and can get $1850 a month in rents then it looks good to me. If you buy at $115k and put 20% down then I would guess your PITI would be around $650-700or so which would leave about $1150-1200 a month for your other expenses (vacancy, maintenance, ult, wsg, hoa) and then whatever left over will be your cash flow.

So let's say 50% of your rent goes to your expenses that will leave you with $225-275 a month in cash flow ($925-PITI). Let's say you put $23k as a down payment and you need $5k to get rent ready (I say $5k but it looks pretty decent already but it could definitely be higher) then your COC return will between 9.7% and 11.8%. So it looks pretty good and when you think about what you get with CDs, stocks, or bonds then it better than those. Also the 50% of your expenses is just a rule of thumb and you may be able to decrease this number to increase your cash flow and COC return.

Drive that area and make sure you are comfortable there. There are worse neighborhoods than Hilltop but it's not a good area. I have a house there (my first rental and a big remodel) couple blocks SW of this duplex. It's a mix bag - some blocks better than others. We are unfortunately on a worse looking block - our rental is the best looking. Crime can be high. The week before we completed the big remodel and tenant was going to move in in spring 2012, people broke into crawlspace trying to steal copper. The idiots didn't know what they were doing or were so desperate they could have blown up the house... they cut 10 feet of our brand new 220 line for the range and about 3 feet of the gas line (copper, corrugated looking). Cost us about $1000 in repairs and lost rents. I definitely lock doors when I am there at the house. Fortunately we have a pretty good tenant who is very comfortable in that type of neighborhood but he will probably move soon to a smaller place. This is the one in our portfolio I would dump if we can't find a good responsible tenant. We buy in other somewhat sketchy neighborhood but I don't look for properties there... if you buy, I recommend finding one with a good 3-4 block buffer.

If you are looking for good strong cashflow, you can do that here. It depends on what you are willing to trade off.

Hope this helps!

I can't tell from the Trulia listing as the pictures are not coming up, but the craigslist pictures are taken with no one currently renting the units, so either after the most up to date remodel or no one is currently renting the unit.  Just something I have noticed people doing lately on listings, using the best photos they have of places even though they are 2-5 years old.  And no lease in place is a sketchy item as well.  Verify everything that you can.  Its possible this is a good deal but its also possible it is not, there is a lot of grey right now with the post about this property. 

Thank you everyone!

I really appreciate your help.

I decided not to pursue this deal.

Being that it is my first deal and 150 miles away, combined with the risk of high-crime area and potentially high-maintenance tenants made this one unappealing.

Thanks again! You're the best!

@Mike Andes  the key words you mentioned were "Owner says he is getting $1850/month in total rent... no leases in place."  Since you're unfamiliar with the area, this deal is going to require some major due diligence.  The owner could be lying about the rents, so you will want to check market rents to confirm this is a realistic number.  The fact that he does not have leases in place is an indicator that this property is very poorly managed.  So look for neglected maintenance issues.

Since this deal will likely require a major investment of your time, keep in mind that there is a strong chance it won't close (It's a CL ad, it is your first deal, property is probably terribly mismanaged, you may find some major issues that will kill the deal, etc).  It's a tough scenario to choose as your first deal, so I would not proceed with a purchase unless you partner with an experienced investor or if you have an experienced mentor that walks you through the due diligence.

But even if this doesn't close, it will be a great learning opportunity that will pay dividends down the road.  You could view it as a dry run so that you gain experience doing the research, working the numbers, estimating rehab costs, etc.  Best of luck!

*Edit:  Looks like you decided not to move forward.  Good, conservative decision.  Always remember Warren Buffett's Rule #1:  Never lose money.

It's can be hit or miss in this area of Tacoma. This property has already gone pending once in the last month and has been on the market 23 days. It would probably pencil. But I think your right about your first deal being in the Tacoma area when your up near Bellingham. It still might be good to look at just to get a feel for this style of duplex conversion.

I think Ty is on the right track Mike.  Now that you have decided not to do the deal, take a good look at it in detail and use it as a practice run for the next deal.

mike,

I go through Tacoma a lot. 6th ave is the division of north and south. If you are on the other side of 6th you would be in the "north end". And this would be a steal. This unit is on "hill top".  Area is being revitalized, but also lots of construction etc and on street parking only.   Price still seems a bit too favorable and makes me think something is up with the property, like an assessment or major repair needed.  If I have some spare time, I can do a drive by for ya tomorrow. Getting ready to go to Mexico Tuesday, so day will be hectic.  

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