Overly skeptical of already rented properties?

I've seen a lot of listings on Craigslist for already rented duplexes or SFHs for dirt cheap. An example is this for $39,900:

This is a fully rented 2 family. Valued at $80k. The front unit has just been freshened up and has a newer tenant in it paying $425/month. The rear unit has a longer term tenant and they pay $400/month religiously. Each unit has 2 BR's and 1 Bath. The back unit has access to the full basement, which is partially finished with extra storage. There is ample parking to the rear of property. This is virtually a turnkey investment opportunity that could make a nice monthly car payment for you without you lifting a finger.

I'm very skeptical of these deals because why wouldn't someone keep something with such good cash flow? Or at least sell it for much closer to its value? It's just a little toooo easy...

Comments?

Justin

Justin,

I'd be a hesitant to say this is 'cash flowing' nicely.

Let's do some math...

Total rental income.... $825/mo
NOI (using 50% rule)... $413/mo
$100/door cash flow.....($200)/mo
Net to service debt.......$213/mo

$213 payment @ 7.5% for 30 years is...

$30,500 (rounded.

So your $39k deal may not be that great....

Justin,
The other important piece of information that is missing is which party is responsible for the utilities. If the landlord pays the utilities, this is not a good investment.
They might be selling to realize some profit and move on to the next project. These are hard to finance and they probably have their cash tied up. This does not make or break the deal as to why they are selling unless there is an undisclosed issue with the property.
It is reasonable to be wary of any deal; however, you never know for sure until you check it out with your own eyes.
Good Luck

This is pretty much in line with the 2% rule so the price is right, but Chris brought an excellent point. If the utilities are paid by the landlord, it could be a terrible deal. However if not there could be a host of reasons why would anyone sell. Medical reasons, short on cash, age, high maintenance cost. If you like the deal, ask all the questions and do your due diligence. This deal sound good but not too good to be true so I wouldn't discard it.

In rough neighborhoods (even if they are not war zones) you can throw cash flow figures out the window. Very difficult to find and keep quality tenants so vacancy rates and repairs after move outs soar, especially without exceptional management which is very difficult to find.This situation can create the tired landlord anxious to sell his property. The cash flow may look good on paper but in reality its not. :roll: Jim