To Purchase or Not to Purchase?
Hi Everyone,
So, my wife and I ready to start purchasing our first rental property! Let me run some numbers past everyone and see what everyone thinks. Its an up/down 1600 SqFt duplex with 2/1 upstairs, and 3/1 downstairs. they are asking $115,000. Current renters are on a month to month contract (which would change), and they pay $1500.00 between them both (700 up, 800 down). They've also been there a decent amount of time (2 years and 8 years, so I don't believe they intend on moving, unless they have to. The location of the home is in a small town of about 1900, and a lot of people rent. Not much jobs in the area, but its fairly cheap living compared to towns around them. The owner pays utilities, which I have a copy of the income and expense sheet from both the owner and utility companies, and the utilities for water, gas, electric, and garbage, costs about $400.00 per month. So here are my numbers is I factored them correctly, if purchased at asking price;
Income $1500.00 per month/$18000.00 per year.
Mortgage PITI: $741.00
Vacancy: $150.00 per month
Utilities: $400.00 on avg. per month
Cashflow $209.00 per month/$2508.00 per year
Here's the issue and reason why im looking to get a second opinion. The cash flow is a bit weak in my opinion, especially if something were to go wrong. The utilities are paid by the owner, which the current owner can do because he bought it at a very low price awhile back. I don't have a problem having the utilities in my name and me paying them, (it'll be a good write off) but I'd like to have their rents increased to cover that cost by adding $200.00 per unit for their rent. The problem with increasing their rents is that their rents are about the average of the same around them. Another issue is that the upstairs tenant has control of the thermostat, so if the lower level tenant wants heat, they need to call the upstairs tenant to turn it up or down. The lower level tenant has been there for 8 years, so I dont think its a deal breaker if i didnt fix that issue, but my idea was just to purchase the property and put in a 2nd heat/ac system and divide up all the utilities, but the cost wouldn't be worth it.
The "What If" factor is going through my head on just about everything. Im willing to bet that the owner will sell for less, but I just plan at asking price. Other then those issues, the house is in pretty decent shape and I dont foresee any issues happening, but I am always trying to prep for that issue. Am I just too paranoid about the numbers? Am I expecting too much out of my first investment property? Is it too much to ask for the tenants to have their rents increased because of the average cost of utilities? Anyones opinion would be greatful!
Thanks
Jeremy