I'm in escrow for a cute little duplex in Tacoma. This is officially my FIRST real estate transaction. Its a 2 bedroom on top and a studio on the bottom. I think I have opportunity for forced appreciation because the lower studio unit has tons of underutilized space and I can possibly create two bedrooms down there. Also the rent for both units was way too low for that area. They were charging $450 for the studio and I charge $783 for studios at the building I manage and that is a 60% low income tax credit property. The 2 bedroom unit is currently rented for $750 and that included utilities which are $484 per month. In my building we charge $929 for 2 bedrooms and they don't get a yard, washer & drier in the unit or a parking spot. Also I checked craigslist for 2 bedroom houses for rent in that zip code and found that they range from $1200-$2000. This house has a huge fenced yard with a vegetable garden. When looking at the layout of the neighboring homes I see that the land I'm getting with this house actually could be split into two lots. All the adjacent properties have two homes on that same amount of land. This means someday if I wanted to I could potentially build a second duplex.
I have an FHA loan so I need to owner occupy until I can refinance. I think I'm going to take the studio and while I live there build out the under used space and rent the upstairs for $1200.00. I have an apartment at the building I manage so for 7 days out of the month I could stay there and rent out the studio on airbnb to bring in some extra cash. That is why I'm figuring on $2040 monthly income. I didn't factor this into the deal analysis but I am also going to rent out one of the bedrooms of my apartment (in the building I manage) which will get me to the househacking goal.
|Apartment rent (after roommate pays)||($177)|
|House 2 bd rental income||$1,200|
|House studio airbnb potential ([email protected]$120)||840|
|House utilities 1/3 of $484||-161.32|
Here is the deal analysis on the Bigger Pockets calculator for buy and hold:
I already had the inspections done. Sewer scope came up perfect. Home inspection only had minor things which my realtor has just asked the seller to handle (pending response):
Items To Be Addressed:
13. The basement shower stall and plumbing fixtures were in in poor condition and should be replaced.
Here are my questions:
1) Do I have a deal?
2) What advice do you have based on what I've told you I plan to do?
3) What potential problems am I possibly not seeing?
4) How difficult would it be to have the utilities separately metered?
5) How much would it cost and how difficult would it be to have an old oil furnace removed? It's not being used at all and just taking up space. I want to keep the duct-work in case I need it later.
Thanks for reading all of that!!
This post has been removed.
I cannot believe no one else has posted a reply. This is quite unusual for BP. I see a couple red flags on this. But first things first.
1) You see potential value adds. That is a huge, awesome thing to find in real estate deals. I congratulate you on good analysis.
2) The utilities for this building are outrageous. It is a small house, and should not be going through $484.00 in heat, electric, and water. Something is very wrong. I have a 2700 square foot house in Minnesota that bills much less than 1/2 of that.
1) This property has a lot of deferred maintenance. The low rents are usually a sign that this is occurring.
2) Three prong ungrounded outlets. This is another indication that the previous owner was doing 'home brew' maintenance. I've been working with my electrician for a couple years, and I know how to legally ground three prong outlets. While it is not difficult to do, it would take time.
3) Your trying to comp to 2 bedroom houses that are not duplexes. Cannot do that. Those are entire houses, and have a higher rent premium. Your house has a tenant neighbor that the renter cannot be separated from.
4) You assume you can subdivide your lot. Check local zoning codes. If this property is zoned as residential, SFDU only, then the duplex could be illegal. If it is zoned for max of two units, you cannot build a second duplex.
5) A $222.00 cash flow will be hindered by all the required cap ex maintenance. You haven't factored in any ongoing maintenance, or maintenance you need to do just to bring this up to code.
6) It appears you haven't factored vacancy. I would factor 5% of gross receipts for vacancy.
I would pass, and look for a better deal. Your analysis and attention to detail is good. Give yourself a pat on the back, and find a better one.
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