Found a property Not sure if I should invest.

12 Replies

My neighbor is selling a duplex that currently has both units occupied.

She charges $1750 a month for each unit ($3500) which includes water and heat. She's askin 299,000; however she only owes 265,000. Minimal repairs need to be done. I want to offer her 270,000. 

Does this sound like a good investment?

Someone would need to have a lot more information. Age of the units, size, what is the area like? Economy good? Amenities in the units? The income and expenses are important, but other things affect values too. 

@Tamara George  like @Karen Margrave  said you need to provide a lot more information before someone can give you any feedback. If you were to invest $270,000 in another property in the same area as this property, what kind of returns will you get?

The returns are all relative. I'm my area, for $270k, I would get over $5k/month with tenants paying all utilities including lawn maintenance and snow removal.

I would think the heating bills could take a rather large chunk out of that $1750.

Originally posted by @Sharad M.: The returns are all relative. I'm my area, for $270k, I would get over $5k/month with tenants paying all utilities including lawn maintenance and snow removal.

 Me too.  But good returns can be had if you are investing in a good area and are happy with the outcome.

It also depends on your goal, area, and expenses. In alaska I bet the cost of heating could be high. So that is voting to cut into your value. what is the house "worth". Everyone can charge what ever they. The key is what is it worth. What price range do you want? 

Hi Tamara,

Aside from what others have said, I'm wondering if this is "for sale by owner"(FSBO) or through a realtor? If it's by a realtor, your 270K offer would require her to pay (appx. 11K) for selling the place, and (IMO) is not very likely, unless she's desperate.

As far as establishing a value, almost any realtor will give you a list of duplex sales for the last 6 mos.- 1 yr. and you could determine the comps from there. I (personally) would also look at valuing it like a commercial (5+ unit) property, applying maybe a 40% (rather than the standard 50%) rule and dividing that by a market cap rate for the area.

Also, check out the podcast with Michael Quarles (I think it's #79) about negotiating with a motivated seller, it's awesome!

Thank you everyone for your advice. The duplex is in a nice neighborhood. It's actually a few blocks down the street from my current house. If I were to invest in the property, I would raise the rent because the neighborhood goes for around $2000 without any utilities. So I would do that. 

Also the monthly heating is an annual $4600 bill. 

@Tamara George   Is 279 Shannon Drive the property you are looking at? If so, here's how I evaluate that deal:

Monthly Rent: $3600 (you claim $2000 is possible but personally I would not pay more than $1800 due to the one car garage.

PIT: $1130 (estimating tax due to county site down for maintenance)

Management: $360 (10%)

Vacancy: $180 (5%, I usually use 10% but current owners claim history of low vacancy)

Utilities: $383 (assumes heat is the ONLY utility paid for by owner)

Maint/CapEx: $360 (10%)

Rehab: $5000 up front (This assumes not much needs to be done)

If your purchase price is $270k and you have a down payment if 25% for an investment property ($55,000), I calculate the cash on cash return to be 11.22%. This is decent, but not outstanding for me, especially since I lowered the vacancy factor from what I usually evaluate. 

Personally, I would only be interested in this property if the price were more like $220k. That gives a CoC of nearly 20% and, in my opinion, leaves a lot more room for error. Alaska is just such a unique market that I think it pays to be conservative on your deals.

Hopefully this helps you make a decision!

@Matt Slykhuis, thank you so much. That does help. You really know your stuff. I appreciate your knowledge.

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