Would you buy this duplex

Question

Goal for me is usually 10% coc, but this one is more like 5%...appreciation we've been getting is very good though - around 15%/yr for the last several years. Property is in good shape. I'm on the fence this time with the covid, social unrest, election yr etc. Hoping for some feedback from investors on this deal analysis. Thank you - stay healthy & safe out there.

Here's the link

https://www.biggerpockets.com/...

Here's the link

https://www.biggerpockets.com/...

Tim Herman · Answer

@Noah P Bonds Interesting reading. Vacancy of 2% is your tenants staying 50 months before you turnover. I use 8% or 1 turnover per year. How about those tenants that aren't paying and the landlords are out 6 months rent. If you are out the 6 months the new tenants would need to stay there 300 months to average 2% vacancy. $25 per month per unit might cover 1 plugged toilet per year but no reserves, I use 5% for repairs. Even as a contractor your 2% capex won't cover the materials. Floors have a life span of 10 years. Between the 2 units if you have 2000 sf. My area it is around $3 sf for materials. $6000/10 year life span/12 months in a year=$50 per month for material cost alone. I guess you will pull out of your pocket roof, appliances, hot water heater, hvac, bath and kitchen remodel, etc. I use 10%. If the PM charges rent up fees then your true cost will be in the 10-12%.

Evan Polaski · Answer

@Noah P Bonds, this would also be a pass for me.  One thing I see time and time again here, which Tim hits on, is capex reserves.  Everything in the property has a useful life, sometimes short, sometimes long.  But even if the roof is brand new, you are likely to get 25-30 yrs out of it before it needs replaced, but replacing it costs $6,000+.  That is about $20/mo in reserves just for the roof.  Add in siding, exterior paint, any decks/porches, windows, appliances, flooring, counters, cabinets, HVAC, etc, and you have a couple hundred dollars per month in capex reserves.

Again, as Tim mentioned, you could just come out of pocket for those things, if you access to the capital, or you could save now.  Everyone views these items differently, but I try to underwrite conservatively, and want that money there when I need it, so increasing those repair and capex reserves mean I pass on a lot of deals, but don't get burned blowing through several years of cashflow to replace a roof.

Noah P Bonds · Answer

@Tim Herman

Thanks for the feedback. Much appreciated. I think I put my costs so low trying to convince myself to go for it... I like how you explain the vacancy. It’s easy to just look at the numbers and not put it into perspective.

Account Closed · Answer

This property would be a hard no for me.

1. With a $360k purchase price I would like to see total rent in the ball park of $3600/mo. That is based on the 1% rule which is NOT a hard and fast rule but it is my first filter when looking at prospective properties. If you believe the rents are going to total $2350/mo per your report, that is simply too far from 3600 to make sense. And you are seeing that in your numbers.

2. $148/mo is quite simply not worth my time and 1.81% CoC ROI is awful. I get more than that with my savings account.

Personally here are the criteria I use

Repairs 10% (I will pull a few percentage points off if it has been or will be a fresh renovation OR if it is a fairly new build)

Vacancy 8% (Agree with Tim that this accounts for 1 vacant month every year due to turnover)

CapEx 5% (same as repairs, will pull a couple points off if property is in nice condition)

Property Management 10%

Other Fees $100/mo (this is to cover lawn care, snow removal, and just put a conservative buffer into my analysis)

Target:

Cash Flow $150/mo/unit

CoCR 12%+

I believe theses numbers to be the most conservative side and that is why I start each analysis here. If the property is close to my target Cash Flow and CoCR then its probably a solid deal and I will dig in more.

Christen G. · Answer

Echoing what the others have said: don't put your costs so low - if anything, go the other way w/ all that's going on right now...especially with "vacancy"

Noah P Bonds · Answer

Thank you everyone for your feedback. I put in more realistic numbers and the cash flow just isn’t there. Actually those numbers pretty much rule out all listings in my area. I think investors here are aiming for appreciation and making money when they sell. This is the Boise, ID area and appreciation has really been spectacular so I see why people still buy. I think that’s risky though. Have any of you ever bought for appreciation?

Would you buy this duplex

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