Cash flowing duplex
Good morning all.
I am looking at a interesting deal that on paper seems like a no brainer. A property manager in Dayton OH I have been working with me has brought me a duplex that one side has been rented out since 2018 fairly low rent of $750. The other side however was renovated and has been doing very well on Airbnb. The owner has records of 3 years of that unit bringing in between 2-2500 a month. My issue is that price for the duplex is listed at 200k, but the median comp in the area is 56k. I have looked at the Airbnb listing and everyone loves the apartment, the only bad comment it gets is its in a little rougher neighborhood. The duplex is walking distance from Downtown. My first thought was to do the same to the other side and get them both on Airbnb.
Should I be worried about the comps being so low?
I have not had a Airbnb rental myself, my property manager lives 10 mins from the duplex and would do all the managing. Not sure about restriction that may come to Airbnb rentals. I am not up to date on short term rental strategies at all.
Thanks for you time!
Hey Adam, I am a local real estate agent and investor in that city. Feel free to shoot me a DM if you want my opinion or if you have any other questions.
Thanks Tyler, just shot you a DM!
Quote from @Adam Huntahlers:
Good morning all.
I am looking at a interesting deal that on paper seems like a no brainer. A property manager in Dayton OH I have been working with me has brought me a duplex that one side has been rented out since 2018 fairly low rent of $750. The other side however was renovated and has been doing very well on Airbnb. The owner has records of 3 years of that unit bringing in between 2-2500 a month. My issue is that price for the duplex is listed at 200k, but the median comp in the area is 56k. I have looked at the Airbnb listing and everyone loves the apartment, the only bad comment it gets is its in a little rougher neighborhood. The duplex is walking distance from Downtown. My first thought was to do the same to the other side and get them both on Airbnb.
Should I be worried about the comps being so low?
I have not had a Airbnb rental myself, my property manager lives 10 mins from the duplex and would do all the managing. Not sure about restriction that may come to Airbnb rentals. I am not up to date on short term rental strategies at all.
Thanks for you time!
Hi Adam.
I cannot speak to the Dayton-specific short term rental requirements, but I can tell you they are fairly stringent and complex in my market, Nashville, so I would highly recommend a local realtor or property manager who can explain to you all the legal and financial requirements.
In terms of overall deal analysis, I would keep in mind that IF you can successfully implement the duplex as an Airbnb on both sides (again, check with local experts on this feasibility), future purchasers are more likely to treat the property more akin to a commercial property in terms of valuation than a residential one.
As such, definitely utilize a knowledgeable local resource to see if $200k is a reasonable price; however, assuming that is fair, I know many investors would be interested in the future-outlook of the deal if the assumptions you referenced above are accurate:
Purchase price of $200k with gross annual rent (conservatively) of $38,400 (80% of the lower end estimate of the current AirBnb unit) * 2 for both sides, * 12 for the year. This is a cap rate of 19.2% and a Cash on Cash return of ~35% if you assume 20% down and a 7% interest rate and the following expenses, 30% of gross income as management costs = $11,520 + annual mortgage costs of $12,768 = $24,288 expenses. There are additional CapEx and OpEx expenses you should probably keep in mind, but this shows at least on face-value it is a solid opportunity that warrants further investigation to see if it worth purchasing.
Would love to hear your updates if you choose to pursue it or not.
Patrick thanks for the insight. Nashville is actually the reason I questioned Airbnb always being a steady source. I will definitely follow up if this deal is pursued.