Found A Duplex - How to navigate transaction and deal evaluation

[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?

[Scott Skinger]

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.