Help me analyze potential first deal please :) - Duplex / Portland OR

[Daniel Jodrey]

Hello BP,

Currently looking at a Duplex and curious thoughts/opinions and any advice or things that I am not thinking of. Have been looking for a long time for our first deal and trying not to have analysis paralysis and at same time being cautious and not getting into a bad situation.

The property was built in the 70's. One side has not been updated much since the 70's and the other side has been updated somewhat. Overall the property seems in good shape and no major issues that is known or seen. Our plan would be to get the most updated side rent ready first and rent out quickly (estimate roughly $10k to get it fully rent ready). We would plan to House Hack and live in flip the other side that is very outdated. It is in a great area that has seen a lot of growth through recent years. It is walking distance to lots of shopping/restaurants etc.

We spoke with realtor today and she believes we have a competitive offer with price that is close to asking, as well as a 6% sellers credit. We would plan to use the credit for rate buy down and getting us a interest rate 6%, as things stand today. The owner is a single man that is old age and needed to move into a retirement home. He is motivated to sell and already expressed he would be open to the credit.

I ran the numbers on the calculators and got the below. This is of course dependent on if we can rent for the proposed amounts and there are not major issues with the property that would require more money. Overall it seems to be in good shape and no glaring damage/issues.

Details: Full Duplex
- 6 Bed / 3 bath

-2,400 sq ft

-Asking Price: $600k 

-Offer Price: $585k with 6% seller credit. 

-Down Payment: 20% ($117,000)

-Potential Rents: $2,000-$2,300 (Most 3 Bed 1 1/2 Bath rentals within 5 mile radius we found on Rentometer are around $2,100)

-Monthly Income Estimate: $4,200

-Total Expenses (Incl. 15% for Maintenance/ Vacancy/Cap Ex) : $3,876

-Monthly Cash Flow: $324

-CoC ROI: 3.31

-5 Year Annualized Return: 10.52%

-NOI $37,548

-Pro Forma Cap: 6.42%

What I like:

     - Great location in a growing area and walking distance to many shopping and restaurants.

     -Property seems to be in overall good shape with overall good curb appeal. It needs mostly cosmetic work (paint, new flooring, few doors and windows). I feel good value add opportunity as well as we would live in flip the other side and earn some sweat equity.

     -I like each side has garage as well as large fenced backyard.

     -If i can get rents for ~$2200 and also get the sellers credit to buy down the rate , we should cash flow from beginning.

What I'm concerned with:

     -Being built in the 70's, there is hidden issues that could bring big costs. Roof was done in 2005 but appears to be in good shape. Water heaters installed in 2018

     -It only has 1 full bath upstairs and a half bath downstairs. The 3rd bedroom is very small. Would only work for a office/small child/nursery.

     -The market is so volatile and are we buying at potentially a very bad time (I know we cant know this, but its still scary)

Please let me know overall thoughts and things I'm missing. Overall we are trying to find anything that would break even or cash flow so we can get started on our investing journey. Plan is to long term rent and hold for a long time. Wanting to acquire 5-6+ long term hold properties to build out our portfolio and be financially free in 12 years or so. Thank you!

[Christine Mulkins]

Hi Daniel!  Just a few thoughts come to mind... if your monthly total expenses are about $3900 with 20% down and you rent out just the 1 side for $2100, you'll be negative ~$1800 per month. Moving into 1 side can slow down the process of getting the 2nd unit rent ready so I'm thinking you should consider renting both sides out from the start.  Like you mentioned, start with the one that needs less work first, get that unit filled, and then work on the next place.  If the duplex is in a very desirable area in high demand and close to lots of amenities, you shouldn't need to spend too much money getting the places "rent ready."  Especially if they're giving off the 70's charm, if the places are in pretty good shape but are just outdated, then a fresh coat of paint, potentially new floors (LVP, carpet, or both), and a good cleaning might be all they need?  I agree with you that each unit having a garage and backyard is a huge bonus.  You'll likely be competing with neighboring large multifamily properties so having a space that feels like a home to a prospective tenant is a big bonus.  

While Rentometer is a good first step, my husband and I always search Craigslist to see what rents are for local competition.  This should give you a better gauge of how to price your units.  Who knows, maybe you could even get a little more for your units?

Last thought...since this would be your first rental property deal and you're buying in Oregon, please be sure you're familiar with Oregon landlord/tenant laws and in particular, the laws in Portland.  The City of Portland has its own set of stricter, tenant friendly rules.  These set of rules can make it extremely costly to a landlord should you ever need to evict a tenant.  Just keep this in mind.  This is not meant to scare you or discourage you at all.  My husband and I still buy down where we live in Southern Oregon and everything has been fine.  Just being aware of the laws from the start is important to your success. :)  

If you need help with forms, I can send you some great local online resources where we get our leases, check-in reports, addendums, etc. 

Wishing you all the best!