Just Bought a Duplex - Need Advice! =)

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Just Bought a Duplex - Need Advice! =)

David W.
Investor · Los Angeles · Member since 2018 · 134 posts · 117 votes

Hello! 

I just got my offer accepted on a duplex in Columbus. I wanted to see if anyone could go over my numbers to confirm they are ok. Have to do a walk through to determine if anything needs work and condition. I will definitely be requesting credits if anything needs fixing as I cannot tweak the numbers anymore. Realtor has claimed turnkey ready so I will hold her to that otherwise I'm canceling. 

Duplex 

$100,0000 purchase price

25% down = $25,000

5.99% 30 year conventional 2 points (but trying to get them to reduce it to 1 point) 


Insurance will be approx $120 (probably less like $110)

Property tax is currently $2300 a year but I put $2500 to be safe.

$30 month for landscaping but for 6 months of the year so comes to $15/mth

Lender said it will be $5316.45 (Title, lender costs $895, origination costs, title insurance $2150, appraisal costs, gov quoting costs), discount point $2271 so I will need approx $30,000 to close. 

Currently, one unit is rented out at $600 and I will immediately send a 30 day notice to inform that rent will be increasing to $650 and they will be in charge of utilities. 

Downstairs is vacant and I will try to get $700 but lets use $650 for more realistic calculation. Rentometer and my realtor have both stated rents are average $650 in the area. 

My property manager will take half month for placement of new tenant.

By the hair of my chin I am getting $200. What does everyone think?  

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Tchaka Owen
Real Estate Agent · Merritt Island, FL · Member since 2017 · 974 posts · 1k+ votes
7y

@David W. - if your property manager can rent for more, that changes the numbers. However, I strongly suggest you don't make a habit of paying more because of competition. Once you work out your numbers on any deal, you stick with it (unless something new is introduced such as higher rents). Why? Because the people you're bidding against might be knuckleheads. Or rookies. Or with a totally different investing strategy. 

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  • Jared Smith
    Real Estate Broker · Scottsdale AZ & Cleveland, OH · Member since 2019 · 168 posts · 109 votes
    7y

    @Marc Winter the best deals fall into your lap! I just acquired another property because my neighbor walked next door and asked one of my tenants if I wanted to buy it off market. Word of mouth and local knowledge are powerful.

    1Reply
  • Jared Smith
    Real Estate Broker · Scottsdale AZ & Cleveland, OH · Member since 2019 · 168 posts · 109 votes
    7y

    @David Waddleton what made you decide on Columbus? I would recommend Mesa, AZ and Cleveland OH.

    0Reply
  • Jared Smith
    Real Estate Broker · Scottsdale AZ & Cleveland, OH · Member since 2019 · 168 posts · 109 votes
    7y

    @Tom Shallcross great advice! I would also add moving 2 hrs north to Cleveland OH which is a better market!

    0Reply
  • Jared Smith
    Real Estate Broker · Scottsdale AZ & Cleveland, OH · Member since 2019 · 168 posts · 109 votes
    7y

    @Ned J. Sometime you have to learn the hard way but also if this is a first investment I would recommend it being within driving distance to where you are living so that you can learn the business and meet with the contractors to scale faster.

    1Reply
  • Matt Leber
    Rental Property Investor · Orlando, FL · Member since 2015 · 353 posts · 269 votes
    7y

    @David Waddleton I don’t hate the deal, especially if it’s your first one and considering our point in the market. I just did a similar deal in Jacksonville FL, although I scooped up 2 duplexes @ $80k each. From my experience with our duplexes, I would expect that you’re going to take some vacancy costs on the chin up front if you’re raising the rent and switching the existing tenants onto prop Mgmt. We did the same with the tenants we inherited and 3/4 left over the Christmas season when it’s harder to fill units. Yeah, it sucks to get hit with some costs up front but if your goal is to increase your monthly passive cash flow it’s not the worst move if you have the reserves to handle it for a short time. Also, if your Mgmt company is suddenly saying the market rents for the units are $50 higher, be prepared for the units to take slightly longer to fill. We also observed this in our deal.

    Overall, it’s a solid first deal if you can achieve your $100+ per door goal and you will gain a ton of valuable education from it. Importantly, you will learn the skill of working with a management company from a distance, which will allow you to expand the markets you are able to buy in. Glad to see you’re making moves!

    4Reply
  • Brian Ellis
    Rental Property Investor · South shore, MA · Member since 2017 · 1k+ posts · 1k+ votes
    7y

    Stick to your original numbers. But don't just throw the deal away, go through with the inspection. If there is work to be done, use that to negotiate.

    4Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    7y

    @David Waddleton. Your numbers look okay. It’s an okay deal but probably not one I would do. Have you accounted for snow removal/trash removal etc?

    Also as others have said your rate is to high. I can get a commercial loan right now for 6 percent, which means you should be closer to 5.5 percent and either 1 point or no points. Your lender is overcharging you, both in fees and interest rate. Also I would probably get another quote on that title insurance, seems high

    2Reply
  • Robert EllisBusiness Member
    Developer · Miami, FL · Member since 2014 · 3k+ posts · 1k+ votes
    7y
    Originally posted by @David W.:

    Hello! 

    I just got my offer accepted on a duplex in Columbus. I wanted to see if anyone could go over my numbers to confirm they are ok. Have to do a walk through to determine if anything needs work and condition. I will definitely be requesting credits if anything needs fixing as I cannot tweak the numbers anymore. Realtor has claimed turnkey ready so I will hold her to that otherwise I'm canceling. 

    Duplex 

    $100,0000 purchase price

    25% down = $25,000

    5.99% 30 year conventional 2 points (but trying to get them to reduce it to 1 point) 


    Insurance will be approx $120 (probably less like $110)

    Property tax is currently $2300 a year but I put $2500 to be safe.

    $30 month for landscaping but for 6 months of the year so comes to $15/mth

    Lender said it will be $5316.45 (Title, lender costs $895, origination costs, title insurance $2150, appraisal costs, gov quoting costs), discount point $2271 so I will need approx $30,000 to close. 

    Currently, one unit is rented out at $600 and I will immediately send a 30 day notice to inform that rent will be increasing to $650 and they will be in charge of utilities. 

    Downstairs is vacant and I will try to get $700 but lets use $650 for more realistic calculation. Rentometer and my realtor have both stated rents are average $650 in the area. 

    My property manager will take half month for placement of new tenant.

    By the hair of my chin I am getting $200. What does everyone think?  

     Pass on this one, you can get cash flow doubles in 43204, 43211, 43229, 43206, and a few other zips as a start in columbus that will be better than this 

    [email protected]786-494-6766
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    5Reply
  • Victor S.
    WorldWide · Member since 2016 · 1k+ posts · 1k+ votes
    7y

    Basically what everyone else had said. What is your current RE strategy? Is it just cash flow? Value-add? BRRRR? How long is it going to take you to raise another $30k? By the way, you haven't "bought" this duplex yet (thank God).

    2Reply
  • Kyle Schlosser
    Specialist · Louisville, KY · Member since 2017 · 166 posts · 154 votes
    7y

    @David Waddleton What general part of Columbus is this in?

    0Reply
  • James Barry
    Real Estate Broker · Houston, TX · Member since 2016 · 27 posts · 15 votes
    7y

    @David Waddleton

    Hi David, no one knows if this is the right deal for you more than YOU.

    My advice to you is to ask yourself if this is the best deal for me right now? What are your goals? Are you looking for experience and can deal with minimal monthly profit?

    Be confident in yourself and a good decision will manifest.

    Hope I helped.

    4Reply
  • Andrew Flora
    Rental Property Investor · North Vernon, IN · Member since 2018 · 136 posts · 192 votes
    7y

    I would buy this if it was in my local area and I could manage it myself.  The numbers are a little thin for an out of state investment.  You don’t have the margins to support the risk.  If your property manager does a sub par job, if you have to evict a tenant, if you have a water leak or unexpected maintenance(something always happens when you’re least prepared to pay for it), if you get sued, if you have a double vacancy issue at some point, or a tenant trashes a unit, etc you would be reaching into your own pocket every year to subsidize your investment.  This would likely be a break even investment and your only gain would be long term equity gain, and appreciation IF it appreciates.

    I take investments like these in my local area because I can increase cash flow by self managing, mowing myself, doing some maintenance myself, evicting tenants myself without an attorney, cleaning and turning over units myself, etc but when you’re out of state you’re paying a premium for all of that and trusting that people will do as good of a job as you would yourself(they never will).  It’s up to you, but think long and hard about the worst case scenario and what it would do to you financially.  If you won’t miss the 25k and you could easily spare a few grand out of your pocket without it effecting you’re life then go for it and wait 15 years to reap the rewards, but if you want supplemental income and accelerated wealth growth pass and keep looking.

    4Reply
  • Matt P.
    Investor · Columbus, OH · Member since 2015 · 625 posts · 601 votes
    7y

    @David Waddleton Columbus oh? That deal is to tight for me. I self manage and I still wouldn't buy it. Where is it in Columbus?

    0Reply
  • Matt P.
    Investor · Columbus, OH · Member since 2015 · 625 posts · 601 votes
    7y

    Wow I just read through the thread. People who are saying a duplex bought for 100k that rents for 650 a month is a good or even decent deal are crazy IMO. Feel free to PM me if you want some impartial advice from someone who is operating in central Ohio.

    3Reply
  • Jess White
    Rental Property Investor · San Jose, CA · Member since 2018 · 152 posts · 159 votes
    7y
    @David Waddleton great job! You took action and didn’t get analysis paralysis. Forget about scoring big on your first deal. Get out there and make mistakes, jump in a figure it out on the way. Theres plenty of people on here that can say that’s not a good deal, or whatever. But you took action my man, and the next deal you will do even better. I commend that all day. I say as long as you are cash flow positive - you did ok. As for raising the rents, I probably wouldnt. Some responses on here are right, in that you dont want to lose a tenant over 50 bucks a month.
    5Reply
  • Gilbert Lugo
    West Palm Beach, FL · Member since 2017 · 91 posts · 19 votes
    7y

    congrats on getting your offer accepted. I would call an insurance company and verify the insurance is correct and to make sure it’s not in a flood zone. I don’t know if it applies to your area but that was one of my mistakes. 

    2Reply
  • Roshan K.Pro Member
    Oklahoma City, OK · Member since 2017 · 258 posts · 215 votes
    7y

    How are you getting 30 yr financing on a non-occupied house?

    0Reply
  • Roshan K.Pro Member
    Oklahoma City, OK · Member since 2017 · 258 posts · 215 votes
    7y
    Originally posted by @Amit P.:
    @David Waddleton

    I locked in with Chase on 2 duplexes this week at 5.125%, no points, 30 year fixed. You can do better on your rates which should help your numbers.

     How? They told me that they don't do non-owner occupied loans on houses anymore

    2Reply
  • Matt P.
    Investor · Columbus, OH · Member since 2015 · 625 posts · 601 votes
    7y

    @Roshan K. If your looking for financeing in your personal name I have a guy that lends in a ton of states. As long as your LOAN amount will be over 70k. 1 to 4 unit investment properties. He digs in and closes loans. PM me and we can see if he can help you out.

    0Reply
  • Michael Ealy
    Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes
    7y
    Originally posted by @David W.:

    Hello! 

    I just got my offer accepted on a duplex in Columbus. I wanted to see if anyone could go over my numbers to confirm they are ok. Have to do a walk through to determine if anything needs work and condition. I will definitely be requesting credits if anything needs fixing as I cannot tweak the numbers anymore. Realtor has claimed turnkey ready so I will hold her to that otherwise I'm canceling. 

    Duplex 

    $100,0000 purchase price

    25% down = $25,000

    5.99% 30 year conventional 2 points (but trying to get them to reduce it to 1 point) 


    Insurance will be approx $120 (probably less like $110)

    Property tax is currently $2300 a year but I put $2500 to be safe.

    $30 month for landscaping but for 6 months of the year so comes to $15/mth

    Lender said it will be $5316.45 (Title, lender costs $895, origination costs, title insurance $2150, appraisal costs, gov quoting costs), discount point $2271 so I will need approx $30,000 to close. 

    Currently, one unit is rented out at $600 and I will immediately send a 30 day notice to inform that rent will be increasing to $650 and they will be in charge of utilities. 

    Downstairs is vacant and I will try to get $700 but lets use $650 for more realistic calculation. Rentometer and my realtor have both stated rents are average $650 in the area. 

    My property manager will take half month for placement of new tenant.

    By the hair of my chin I am getting $200. What does everyone think?  

    David,

    First I commend you for making an offer and getting a property under contract. Most newbies get paralysis by analysis and they don't even make an offer.

    Second, if this deal was presented to me, it's not a deal I would do. However, my goals and criteria for a deal is different than yours and I am more hands-on. So I don't buy turnkey properties. I want properties that I can buy at a big discount because there are problems (like high vacancy, poor management, repairs, etc). Like this 48-unit that is basically vacant (except for a few rented units), that need repairs that I did value-add improvements on and sold for over a $1 M profit.

    https://www.biggerpockets.com/forums/311/topics/64...

    I can see that you're from out of state. At $650/month per unit, it looks like $100/month per door and it can become $150/mo per door at $700/mo. If all your assumptions are correct, and if you're good at $200/mo cashflow for your first deal, then do the deal. 

    One thing you need to check though is it the typical practice the tenants pay for all utilities? If your assumption is wrong, this could turn into a negative cashflow property really quickly.

    Lastly, instead of walking away from the deal (if based on your due diligence - not all your assumptions are true), I would suggest renegotiating the contract. I have deals that were mediocre after I did my due diligence but they turned out to be great deals after I renegotiated the price down significantly.

    5Reply
  • Devin D.
    none · Member since 2017 · 49 posts · 24 votes
    7y
    Originally posted by @David W.:

    Hello! 

    I just got my offer accepted on a duplex in Columbus. I wanted to see if anyone could go over my numbers to confirm they are ok. Have to do a walk through to determine if anything needs work and condition. I will definitely be requesting credits if anything needs fixing as I cannot tweak the numbers anymore. Realtor has claimed turnkey ready so I will hold her to that otherwise I'm canceling. 

    Have you considered investing with a Syndication... better returns and no mess, no headache. I personally will not purchase a property to buy and hold unless I see a 15+% CoC return from day one and have 20%+ ARV in equity. Deals like this are still out there.

    Best of Luck to you with whatever you decide.

    2Reply
  • Roshan K.Pro Member
    Oklahoma City, OK · Member since 2017 · 258 posts · 215 votes
    7y
    Originally posted by @Devin D.:
    Originally posted by @David W.:

    Hello! 

    I just got my offer accepted on a duplex in Columbus. I wanted to see if anyone could go over my numbers to confirm they are ok. Have to do a walk through to determine if anything needs work and condition. I will definitely be requesting credits if anything needs fixing as I cannot tweak the numbers anymore. Realtor has claimed turnkey ready so I will hold her to that otherwise I'm canceling. 

    Have you considered investing with a Syndication... better returns and no mess, no headache. I personally will not purchase a property to buy and hold unless I see a 15+% CoC return from day one and have 20%+ ARV in equity. Deals like this are still out there.

    Best of Luck to you with whatever you decide.

    I have a hard time believing a syndication can do this. At least from a standpoint of today. Could you provide some examples?

    0Reply
  • Roshan K.Pro Member
    Oklahoma City, OK · Member since 2017 · 258 posts · 215 votes
    7y
    Originally posted by @Matt P.:

    @Roshan K. If your looking for financeing in your personal name I have a guy that lends in a ton of states. As long as your LOAN amount will be over 70k. 1 to 4 unit investment properties. He digs in and closes loans. PM me and we can see if he can help you out.

     Usually guys like this can't come close to the terms I get. I'm normally at prime +0.5%, 15% down, 20 year amortization on a 5 yr balloon. And I'm self employed without tax returns. Never seen anyone come close to what I get from my local bank given my circumstances

    0Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    7y

    The combination of vacancy/cap expense is way too low.  Those should not be a function of the rents.  OOS water heater replacement with a small unit volume (large apartment complexes or doing your self can possibly half the cost)has an expense of ~$7/month per unit by itself (so $14/month for a duplex assuming each unit has its own water heater).  12.5 years at $1K.  That would be 10% of your maintenance/cap expense allocation.   Have you replaced a kitchen or a bathroom?  both are large cap expenses.  How about fixed a slab leak or replaced a roof or foundation?  Huge maintenance expenses.  I suspect if you double your maintenance/cap ex estimates you still would be under estimating the life time costs.

    Vacancy at 5% seems OK (depending on the vacancy rate in Columbus) except you know you are starting with a vacant unit and hoping to raise the rent on the other unit.  You can be confident of at least $650 lost rent due to the existing vacancy in the first month (that is almost your estimate for the year).  There is a chance when you raise the rate on the second unit that the tenants give notice.  At least for the first year I would use a 10% vacancy.

    You have a similar issue for your PM fees.  If the PM rents the unit at $700/month you will have a $350 PM fee up front.  I suspect the PM charges ~8% management and has various add on fees.  However, having such a large add on fee at the front means it is unlikely that the first year PM fees will only be 10% ($65/month) because $350 will be upfront (which equates to $30/month).  I doubt the PM will manage a duplex for $35/month for the remainder of the year.  Because one unit is vacant I would use 15% PM for the first year and 12% after the first year.

    Columbus is historically a low appreciation area which I define as having long term appreciation that does not exceed inflation.  This implies that your current cash flow is not likely to increase in inflation adjusted dollars and the RE is not likely to appreciate in inflation adjusted dollars.

    I agree with the other posts that your loan terms do not seem good but I do not know your credit score, etc.  It may be what you can get.

    So you desire to invest $32K to $35K (depending on doing the estimated repairs) for a property that you calculate cash flow at $200 to $300 using optimistic maintenance/cap expense, vacancy, and PM estimates that if I used my cap expense/maintenance numbers for So Cal would bring this to negative cash flow (I am sure in Columbus the cap expense is a little less but a lot of the costs are material costs).

    I suspect the reality of this purchase is that it will cash flow less than $100/month over the long term if nothing catastrophic happens (one of my duplexes got hit by 2 hurricanes to give you a very unlucky, real example).

    You will want to do better.  Do not lower your purchase standards based on what someone else will purchase the RE for.  There are many RE investors that are not making much money.  How did they get in such a position?  Often by purchasing a property with too low cash flow in an area that has historical appreciation no higher than the inflation rate.  Do not be that RE investor.

    Good luck

    2Reply
  • Devin D.
    none · Member since 2017 · 49 posts · 24 votes
    7y
    Originally posted by @Roshan K.:

    I have a hard time believing a syndication can do this. At least from a standpoint of today. Could you provide some examples?

    For example check out Holdfolio... 9-11% 15%+IRR.... If he is only going to get about 7% CoC and has to deal with the headaches.

    The other metrics given are my personal buying criteria for my rental properties and yes they outperform syndications or I would be investing in things that outperform my personal returns.

    0Reply
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