I would appreciate your input on this deal.
I know it is not a home run, but I thought it was a good started property to invest in.
It is in a great neighborhood with great schools and the rent and tenants are very strong. I was planning to buy and hold. Some numbers to look at.
Duplex 2 units 3 bedrooms 1 Bath each
Great school and 1 block to train in a very nice neighborhood.
$210,000 Purchase Price plus closing costs
$233,000 Appraises for
We would borrow 75% which is 172,500 at 5.5% is $979/month
$32, 400 year rent $1350 month each unit very good rental history
$11,750 P&I year
$7560 Real estate taxes and insurance (Taxes Yes very high in this area 6500)
$2700 vacancy two months.
$1200 Utilities on our end water and some of the gas heat in one unit
$500 Lawn and snow
$1620 Management fee 5% we will management the units we live about 2 miles away
$2000 Capex new roof, new heater, new hot water heater, new windows, newer appliances,
13% COC return
Please let me know your thoughts on this deal and if you would adjust any of the numbers.
Hey @Steven Hellinger ,
Not a bad deal overall.
Vacancy: People typically calculate in 7% for that, but obviously you can do 2 months. The $2700 is only a couple hundred more a year saved than the 7%.
Utilities: It depends on what is common in your area, but a lot of people will charge a flat fee to the tenant in addition to the rent for water usage. I have lived in multiple places where that was the case and you may be able to reduce some of the $1200 cost a year by doing that, if the area allows for that.
Lawn and snow: Same thing as above. You may be able to pass some of that on to the tenant if possible.
Management fee: I know you said that you plan on doing the management yourself and I think that is a great idea if that works for you. I would simply caution you that if at some point you decide that you no longer want to do the property management any more, it may cause your deal to be less profitable because you are only calculating in 5% for management. Most places are around 10% for a management fee. But, once again, I don't know your area and what the norm is around there.
CapEx: $2000 seems low. That is only about 6.2%. If your duplex is all updated and has all new things that would be a part of the CapEx stuff then I would say that you could get away with it being lower. For myself, I like to stick with 10%, but that is really personal preference.
I don't see general maintenance type things calculated in, which I would highly encourage. There are always things that need to get worked on.
All in all, seems reasonable. Looks like it has some positive cashflow at the end of the day with how your numbers are run. With my numbers, it looks like it comes out a little bit cashflow negative, unless you can defer some of those costs I mentioned above to the tenant.
I always like analyzing a deal and this one seems like it has some good potential for you, I would just take a little bit of a deeper look into some of the numbers before pulling the trigger.
Good luck and happy investing!!
It looks like a good deal to me.
Based off this numbers, you could live rent free on what the units.
The COC is good. I'd take it.
It is very close to where you live, you know the area well.
You have accounted for management, which is good but you can self manage and save on that expense.
You get it at 10% discount of its appraised value, so from the outset, you have more equity than you paid for.
It is not a home run like you said but for me, those numbers are good.
However, I wonder why you are getting it at a discount.
Can you explain?
Thank you @Dave Passey for your input. I really appreciate the idea to add the general maintenance into the numbers. I also thank you for the idea of charging some or all of the utility charge, snow and lawn as a flat fee to the renters.
@Patrice Penda Thanks for your reply. I was not going to live in one unit I was going to rent out both. I think the reason I am getting the property at a discount is that I am dealing with the seller direct no agent involved therefore no commission. The seller lived in the property and moved out a few year ago because he needed a bigger place for his family. I think he just want to be done with it and I gave him a very fair offer. The home has not appreciated a lot in the area due to the high taxes that is my biggest concern with the investment. Wish me luck I am getting ready to pull the trigger.
@Jason DiClemente thank you for your insight. You are local hopefully we will cross paths soon. Just not much appreciation in the Elkins Park area due to the high taxes. Wish me luck and happy investing
Looks good to me. Don't forget to get 1M liability on the insurance.
@Greg Parker I won't forget the 1m liability.
Hello @Steven Hellinger - at first glance it looks like a deal worth exploring more. A few questions:
- Vacancy of nearly 20% ...is that normal in this area or are you being conservative?
- Utilities - any way to transition this to the tenants? Is that common place in your market?
- Management Fee: if you're managing yourself, why are you calculating a % here?
WOW @ those taxes!
Thanks @Jay Helms for the analysis her are some answers to you thoughts.
I am being conservative on the vacancy not many rental properties in the area that are 3 bedrooms and they are always in high demand.
I can try and transition some of the utilities to the tenants. It is a very solid rent for the area and I already have the water figured into the rent at $50.00 per month per unit. I still pick up the gas for one unit that has baseboard heat and is not separate utilities. Both families in each unit have been there over a year and I am not sure if charging them for the additional utilities will fly. I can always test the market the leases are coming due in July, both tenants are great and pay on time I would hate to lose them.
All of the investors always tell me to put in a management fee even if I will self manage. I was going to keep that extra money in my working capital account. I also wanted to figure in that number just incase someday I decide to not self manage, which I think is highly unlikely.
I know those taxes are crazy, if not for the taxes I think this deal would be a home run. Instead I got maybe a double.
Again thank you for your excellent suggestions.
Good stuff @Steven Hellinger . Is 5% management fee typical in your area? 10% is the standard for the upside of Florida.
I did some research and 10% is the standard fee for managements fee.
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