Found A Duplex - How to navigate transaction and deal evaluation

13 Replies

After a year of trying to finding deals, I've finally found my first off market deal. It's a duplex in Wheat Ridge, Colorado. The owner would probably like to sell for between $410k and $425k. The place is a brick side-by-side duplex on .22 acre lot. The common wall is the garage, so it lives like a single family. It's one house off a busy street thoroughfare, but a Lucky's Market is slated to go in to the area as well. Cozy.com research thinks rents will be at $1500 but I know it rents for slightly more on one side. I have most of the cash to put down, but will have to borrow about 5%, and will probably do so with a heloc.

Also, the owner wants to use his realtor relative to do the transaction, at 1%. I am cautious about that part, but first want to determine if this is a good enough deal.

Thoughts? Is this a good deal?

Hi! Thanks for the reply @Bryan Mitchell . I am going through a local bank and they require 20% down on investment properties. I know 74k isn't 20% but I may borrow a small amount from equity in another building. If you have ideas on how I can put down less, I'd love them.

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Small residential property is mostly valued based on comparable sales in the area.  Check comps.

For nicer stuff, b area 70s-80s builds, ( I'm offering on a triplex now) I generally pay about 110x gross monthly rent.  But that's me and I can take or leave another tenant and toilet.  I am 'mature' in my RE career.  

What is your why for buying?  Store of value? A step on your way to 100?  A side gig to leave for your kids one day?

I'd be at about $330k for yours, but I'm not in Wheatridge.  I think Jon Holdman is there.  He'd have market-specific info to add I'm sure.   

Why are they selling?  Have they been managing themselves since Jesus was a boy, they own free and clear and would like seller financing?  Cash talks.  Do not pay asking with cash ever @Cameron K.

Hi @Account Closed . I do agree that the cash flow isn't great. I am mostly a buy and hold investor (I own another multifamily 6 units) but this would be only the second building I own.

Thanks@Steve Vaughan for the input. Initially, my reasons for investing are for cash flow. But I am also looking for a retirement income that a tenant can help finance. I prefer cash flow but Denver has very few deals right now. 

The seller wants to sell for an estate sale. Another comp went on the market and went under contract in 29 hours at $415k with similar specs.

@Jon Holdman If you have any input on this deal I'd greatly appreciate it. 

Thanks!

Originally posted by @Cameron K. :

[email protected] Vaughan for the input. Initially, my reasons for investing are for cash flow. But I am also looking for a retirement income that a tenant can help finance. I prefer cash flow but Denver has very few deals right now. 

The seller wants to sell for an estate sale. Another comp went on the market and went under contract in 29 hours at $415k with similar specs.

@Jon Holdman If you have any input on this deal I'd greatly appreciate it. 

Thanks!

 Thanks for the clarifications, Cameron.

If your primary purpose for investing is cash-flow, then I believe you have answered your own question.  I would not pay $400k for $3000/mo for the cash-flow.  But I am older school and remember when these duplexes could not be given away for what is owed.  

They may increase even more in value based on supply and demand, but intrinsically, the p/e ratio blows and you will be landlording for free in the meantime.   Good luck to you either way!

Originally posted by @Cameron K. :

After a year of trying to finding deals, I've finally found my first off market deal. It's a duplex in Wheat Ridge, Colorado. The owner would probably like to sell for between $410k and $425k. The place is a brick side-by-side duplex on .22 acre lot. The common wall is the garage, so it lives like a single family. It's one house off a busy street thoroughfare, but a Lucky's Market is slated to go in to the area as well. Cozy.com research thinks rents will be at $1500 but I know it rents for slightly more on one side. I have most of the cash to put down, but will have to borrow about 5%, and will probably do so with a heloc.

Also, the owner wants to use his realtor relative to do the transaction, at 1%. I am cautious about that part, but first want to determine if this is a good enough deal.

Thoughts? Is this a good deal?

It is not a home run but it is not a bad deal either.
I am not familiar with Wheat Ridge BUT if that area is a hot area where house prices are projected to increase or keep increasing over time, that would make it a very good deal, in my opinion.
With  a property that cash flows well enough to keep it, the exposure to house price appreciation would really be the icing on the cake

Which bank will allow 20% down on investment properties? What is the bed/bath count on each unit?

@Matt M.

First Bank requires at least 20%. The duplex sides are each 2/1.

I think your expenses are too low in a few areas. 2% vacancy is allowing you basically one week of vacancy per unit per year. That seems tight. 2% PM ($62) is also low. I'm sure that you're planning on self managing but you should at least account for your time at an hourly rate to help you analyze the investment and calculate true ROI.

Consider using 5% for vacancy and 5% for property management and see if you are still happy with your returns. If things work out better, then great, but it would be prudent to be more conservative in your underwriting and take the emotion/excitement out. 

@Cameron K. $400K is, IMHO, too much to pay for $3000 in monthly rent.  There are no deals for rental properties in Wheat Ridge.  I don't think there's much in the way of deals for rentals anywhere in Denver.  I'm sure others will have different views.

Even if you self manage and pocket the PM's cut, you're looking at expenses around $1000. You seem to be using 15% for a down payment and I don't think that's realistic unless you're living in one side. Freddie Mac has a maximum LTV lf 75% for a 2-4 unit investment property. So, your mortgage payment will be less but you'll need more cash. That puts your P&I closer to $1600 than $1800. So, you will have some cash flow, as long as nothing bad happens.

Two big "bad happens" thing.  Most of WR was built in the last 40's.  Older sewer pipe is clay and its all failing.  If this property has not had its sewer line replace, it will need to be done very soon.  If the sewer is in the street (most are), that gets pricey because you have to trench the street.  The other thing that might happen is storm damage.  We had a devastating hail storm back in May.  I still have damage that's not yet fixed.   You don't give an exact address but if its near the coming Lucky's I have a pretty good idea where this property is.  Its probably 10 blocks +/- from mine.  Every house in my neighborhood had extensive damage to roof, siding, windows and doors.  Even with insurance you will have deductibles and the hassle of dealing with this.  This is not the first time we've had this sort of storm though this one was the worst so far.

@Cameron K. so a couple thoughts. $1,500 seems on the high side for a 2 bed 1 bath in that area. I own a property not too far from where you are looking at. The garage does help but I had some serious push back last fall renting a nice 2 bed 1.5 bath townhouse at $1,300 and it had an additional small bedroom that I billed as an office.

I think some additional negotiations would be in line. They should be willing to discount the 5% you are saving them by not making them post it on the MLS. They want full price and no agent fees. Personally there are better deals out there (no on the MLS of course). I would keep looking unless they are willing to come down on the price. You should easily be able to find a similar property around $375,000 with some careful searching.

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