Thought I would throw this out and see what everyone thinks... I have interest in a duplex, its been vacant for about 8-12 months, I can't tell and the owner won't tell me. She got it quit claim deed 4 months ago. Asking price is 46k. I have spoken to a local PM who also happens to be my neighbor...I think he would steer me pretty straight and another Realtor and both think I can get 950-1000 per month in total rent. It doesn't need any cosmetic rehab. Insurance will be 550.00 and taxes 1453.00...I have figured that I will be making 80 bucks a door which is think is great for my first property (figuring 10% vacancy, 10% PM, and 10% maintenance, luckily for me I have great financing pre-approved due to good credit and a great relationship with the bank). This property sold in 2000 for 60k. Its in decent shape, but I don't have a clue as to the maintenance issues that will come up. I wanted it for less than 46k to save for the potential busted pipes, water heater not working, hvac dead etc... But she won't budge. I offered 42 and she flat out said no. Any advice you can give me? Should I give her the 46 and ask for some closing costs? Or a maintenance budget, or have her turn everything on and then inspect it? Just wanted to see what your thoughts are...If everything is fine, then this is a SUPER deal, but just wanted to get others thoughts and experiences.
You will be cash flowing 80 a door? So 160 a month? I know we try to cashflow 2-300 per door unless the property has great potential for appreciation. Judging off of your purchase price this doesn't seem like it is in an A class neighborhood.
Yes...I don't think there is much room to appreciate there. These figures I have are also based off of 100% financing as well so all I am out are the closing costs.
From your figures, this is not an investment that I would be interested in.
@Jack Slattery Since I am brand new to the buy and hold arena... can you share some insight as to why? Just trying to learn as much as I can before going into it versus learning on the back end.
@Kyle Penlamd I suppose it's all how you look at it. Here's the numbers i used....
Purchase Price: $46K
Down Payment: $0
Mortgage Rate: 5%
Closing Costs: $2300 (assuming 5% of purchase price)
Rent Income: $10,800 / year ($900 / month which is $450 x 2 units)
Gross Income: $10,800 - $1080(10% vacancy) = $9720
Expenses: $1453(Taxes) + $550(Insurance) + $1080(10% Maint) + $1080(10% CAPEX) + $1080(10% PM) = $5243
CAPEX is Capital Expenditure - big ticket items like the roof, a new furnance, new A/C, etc...
NOI (Net Operating Income): $10,800 - $5243 = $4477
Net Income = $4477 - $2963(mortgage principal & interest only) = $1514
ROI: ~95% (includes equity earned)
Cash-on-Cash Return: ~66%
From a pure cashflow perspective, it's probably not worth it since i'm calculating your total profit for the first year of ~$1500. But, it is a cashflow positive property and if you look at your Cash-on-Cash return (which a lot of investors are more concerned about because it calculates the return based only off of how much actual out of pocket cash you put in.... this case being only $2300) then this is an outstanding deal on paper.
As @Ryan Dossey suggested if this property is not in an A class neighborhood then you're looking at lost rent due to failure to pay and evictions which would put you in the negative since the profit is so slim. For that reason alone, I would not do this deal.
@Alexander Merritt Thats Great Feedback! Thanks!!
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