New Construction Duplex

6 Replies

I have come across a developer that is building a couple duplexs for investors. I have done a very conservative analysis using the lower end for rent and higher end for expected expenses. Please take a look at the finances below and let me know what you think. Again, this would require zero repairs as it is new construction. I would say the neighborhood is a c+ - B minus type of area. Its directly across from an elementary school. Not sure if thats a positive or negative being so close.

So I would rate that as "average" - certainly nothing to snub. It's about 6% better than the average bank account is paying! I know people want higher cap rates;but that isn't always easy to find. It's so regional - a pro in your area would be better able to assess this. 

Regarding the school: you didn't say anything about the style of the duplexes. If they are designed for families then the school could be a plus. If they are designed for young, single professionals - or retired folks - then maybe not. 

@Jason Luongo   Dont count on zero repairs just be cause its new construction.  Sure the larger items are trouble free, but there is still stuff that breaks (I have built four new construction duplexes in the last 4 years).

Some of your expenses are high (like repairs) and other are low (like taxes, insurance, etc) assuming the house is in Florida. Your expenses also assume all utilities are paid by the tenants (may not be the case) and you dont have anything for things like lawn care, etc (this may be your misc expenses).

I would not be wild about a new construction that that rents for less than 1%.  I am also assuming that the purchase price is the finished value, or close to it.

Originally posted by @Teri S. :

So I would rate that as "average" - certainly nothing to snub. It's about 6% better than the average bank account is paying! I know people want higher cap rates;but that isn't always easy to find. It's so regional - a pro in your area would be better able to assess this. 

Regarding the school: you didn't say anything about the style of the duplexes. If they are designed for families then the school could be a plus. If they are designed for young, single professionals - or retired folks - then maybe not. 

 Not to mention, I used a VERY Conservative analysis. I included property management even though I will be managing myself. I also included 5% for repairs, when I don't imagine there will be much to repair at all in the first 5 years or so. The duplex also comes with a one year warranty from the builder. I used 1200$ for rents, but I imagine I could get 1300 pretty easily. This analysis, is basically worst case scenario. As far as "style" they are 3/2 1250 square feet. They could easily house a small family.

Originally posted by @Mike Wood :

@Jason Luongo  Dont count on zero repairs just be cause its new construction.  Sure the larger items are trouble free, but there is still stuff that breaks (I have built four new construction duplexes in the last 4 years).

Some of your expenses are high (like repairs) and other are low (like taxes, insurance, etc) assuming the house is in Florida. Your expenses also assume all utilities are paid by the tenants (may not be the case) and you dont have anything for things like lawn care, etc (this may be your misc expenses).

I would not be wild about a new construction that that rents for less than 1%.  I am also assuming that the purchase price is the finished value, or close to it.

I accounted 5% for repairs in the analysis above mike. Also, I used 3 different websites to calculate the average of the 3 for taxes and insurance. I own another property in the same area, so I have a good idea. All utilities WILL be payed by the tenant. The only other expense for the property is lawn care, which is where that 100$ miscellaneous comes from. 

Like I said above, I was very conservative with this analysis. The number could easily end up much better than this. 

@Jason Luongo you should always account for management fees to determine if a deal is good enough. Your time has value and you never know when circumstances will change and you would be unable for some reason to manage it yourself. Repairs are going to happen even in new places - a spoon in a garbage disposal - a football through a window - koolaid on the carpet. It just happens... 

Originally posted by @Teri S. :

@Jason Luongo you should always account for management fees to determine if a deal is good enough. Your time has value and you never know when circumstances will change and you would be unable for some reason to manage it yourself. Repairs are going to happen even in new places - a spoon in a garbage disposal - a football through a window - koolaid on the carpet. It just happens... 

Yes Teri I agree. Management, repairs and CapEx are all included in the numbers above :)

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