HELP! Pricing a Duplex Flip?

13 Replies

We are considering renovations on a 1500 sq/ft duplex in Durham, NC that is 3 blocks from NCCU and 3 miles from downtown. I understand you price multi-family based on the rent it brings instead of the sold SFH comps in the area. However, is the 1% rule enough to decide ARV?

(Flipped homes before, never a duplex.)

Here is the current plan, PLEASE correct or comment any or all of our assumptions.

  1. Purchase and renovate in 3 months.
  2. Rent both sides for $800 (feel confident about this number possibly even $850)
  3. Hold for 6 months to show good rental history and that it will rent for this amount.
  4. Make $9,600 in rent (minus expenses of course - used BP rental calc)
  5. Sell to Investor wanting turn key rental for $160,000 using 1% rule
  6. OR Sell to Investor for 155,000 to beat 1% rule by a little to sell faster????
  7. Should we sell it for MORE based on other numbers below I haven't considered??
  8. Make money on rent until it sells (unlike flip, it makes while it waits)

Thank you for any and all suggestions. 

Candace

Here are some of the numbers from our rental calculator results if this helps. 

(This is a cash buy/reno.)

Monthly Income:
$1,600.00
Monthly Expenses:
$447.67
Monthly Cashflow:
$1,152.33
Pro Forma Cap Rate:
8.64%
NOI:
$13,828.00


Cash on Cash ROI:
9.54%
Purchase Cap Rate:
19.21%

Duplexes will be appraised (valued) by the comparison approach, not the income approach which is reserved for properties with more than 4 units.

Do it just as you would for SFR except compare your subject property to other duplexes sold in the area.

We have had a very difficult time finding a list of sold duplexes in the area. And the ones we've found have been SO varying it seemed impossible to use. For example a nice updated 2/2 duplex renting for 550 on each side sold for 289,000 and others sold for 100,000 that weren't as updated, but were 4/2s. 

I am in the process of purchasing a duplex right now and there's not many duplexes around. All of the ones that came back on the appraisal were in the hood and drove the value of my property down pretty substantially. The whole reason you would want the ARV number would be to sell, so maybe talk to a turnkey company you could list it with and see what they think. Like @William Hochstedler mentioned though, evaluation isn't based on income for less than 4 units.

Hi @Candace Berry - I'm an agent in Durham. Where are you getting your comps from? 

William is correct in saying that commercial properties (5 units or greater) utilize the income approach when valuing multifamily properties.

@Candace Berry I'm curious where this house is; I'm doing one 2 blocks from NCCU!    :)

@William Hochstedler , @Tyler Ansell , @Eric Weireter Thank you so much for your collective advice. We ran out of time in our due diligence to get an appraisal. I realize now there are plenty of duplexes to get comps while there might be limited apartment complexes for straight comps, so they use the income method. We just couldn't find comps online and therefore need an appraisal. We were able to get some great advice from a frequent duplex buyer in the area and opted to no longer do the home. 

@Account Closed I'm sorry we'll miss the chance to work down the road from you! Hope your new project is going well! We'll keep an eye on it through FB. See you around!

Thank you again everyone. 

Candace

@Candace Berry

I'm curious why you decided to pass.  Was it because you couldn't assess the value?  Or something else?

This would be a great time to strengthen your team so you have people around you that can help you evaluate properties like this quickly.  They may include real estate agents and property managers.

Keep that duplex buyer's number!

Good luck

@Candace Berry sounds like you're ok with the result. In my opinion, if you think you've got just a screaming deal it might be worth it to send in an LOI and make the $4-500 bet and get an appraisal done on your own. Let them go through the trouble of finding comps for oddball properties.

@William Hochstedler  You're right. We hadn't planned to use a realtor on this one, but to post it on BP and our local TREIA. We would not want to ask a realtor for an assessment and then not use them. We are absolutely in the process of building our team and didn't feel we had a realtor we worked with before that knew duplexes in the area well enough anyway. 

We decided not to do the duplex because I asked around at one of my real estate meetings if anyone had an experienced duplex contact. They gave us a name and we spoke to him in depth. He knew the duplex, and buys/sells many in the area and explained our assessment of 140-155k was incorrect and it was closer to 90k or 120k on its best day. It would have still been a good investment to hold, but not to flip due to our margins disappearing with the new assessment. Thank you Joshusa J! (BP not letting me tag you at the moment. 

Candace

@Tyler Ansell  We agree, next time we'll know to call in an appraiser and now have names of some as well as a great contact that was very willing to help. However, this time, we gave ourselves one week due diligence, had an unexpected trip that shortened our time more and then began to question our understanding of the 1% rule and if it really applies to duplexes - which thanks to all of you and others locally - we learned it does not. Real estate.... where you learn as you go!

@Candace Berry It's ironic because I had the same troubles myself, I looked far and wide and could never locate really any duplexes at all. Then the appraiser came back with 3 from the absolute hood, bullet-holes in one of them. Meanwhile my realtor put in some work on the MLS and found 3 completely different ones in much more comparable areas but they refused to adjust the appraisal. It all depends on whose looking I guess.

@Tyler Ansell I agree. Duplexes are an entirely different monster apparently. We went with the advise of a guy that buys at least one a month in the area. It was all we could do at the time. Also, we work in SFHs anyway, so this was a "why not" for us. And now we know why not! LOL

This is another issue for buying small multi-family homes in our area.  There is so little inventory that there is little to compare a home to when you do find one you want to buy.  

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.