Duplex. Cheap Price. Rehabbed. Why for sale so long?

Question

I first have to say I am newbie, but this site is giving me the confidence and belief that I can do this!!

Ok, the duplex has had some rehab. Both Units have NEW Paint, NEW Carpet , NEW Kitchen Flooring, and NEW Kitchen Counters. From the pics, both units look move in ready. Where it is located, it would seem that their would be a definite need for housing. The property was last purchased on 10/15 for $16,500, and then they listed the property for $64,900 in 12/15.  I figure they rehabbed the property a little, and are trying to flip for maximum profit. (Who can blame them). So on 1/16 they dropped the price to its current asking price. I have searched a few rental websites for the area, and it would seem places rent for about $750 - $1000 for a 2 bdrm 1 bath. Even if we go on the low end, say $750 rent per unit, that would be $1500 total for both units rented. If you paid cash, or financed this property, wouldn't you still be in the positive cash flow?

The duplex has been on the market for over 200 days, should I be wary?

I could not find any comps in the area that match for duplex, only single family homes.

Am I on the right page? Am I asking the right questions?

Thanks

Michael

Chris Mason · Answer

That could very well mean that no one can appraise it, meaning that no one can get financing on it, meaning it'll have to be an all-cash deal, which could be why it sat for so long.

I've been told that some commercial lenders will allow the use of the income approach to get an opinion of value, which could be a viable solution to you if you don't have the cash.

Adrienne Bryson · Answer

Try the rental calculator here on BP and see if it would actually cash flow.  Sometimes a property looks great on the surface, but when you actually crunch the numbers it doesn't make sense.

If the numbers look good, there's probably some other reason why nobody wants it.  Maybe there was a crime wave in the area recently.  Maybe the cost of utilities has been climbing at an unsustainable rate.  Maybe vacancy for the area is really high.  Maybe the property has some "hidden" issues like a leaky roof or cracked foundation that add enough expense to not make it worth buying.  Maybe it's not appraising for anywhere near asking.

The only real way to find out what's going on is to dig deeper into it.

Elliot Rivera · Answer

Michael,

It depends on what your exit strategy is. If your intent is to buy & hold then the above rental estimates should dictate your decisions. Meaning, is the ROI based on conservative estimates enough to justify the cost? What percentage do you deem a good return? Typically your expenses are going to follow the 50% rule, so will the property cash flow if you finance? A good real estate agent should be able to offer their advice as to why the property has been on the market for as long as it has. Your due diligence would still apply (inspection, analysis, etc.). Ultimately run the numbers, the Biggerpockets calculators are especially useful in this regard.

Good luck!

Duplex. Cheap Price. Rehabbed. Why for sale so long?

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