Waterfront Duplex - Private Sale - Divorce Sale (Possible1stBuy)

2 Replies

Hey Guys,

This is my first post so I welcome criticism and suggestions for improvement in presenting this data :) The listing details are below along with my cash flow analysis. I came across a listing from a friend back in my hometown in New Brunswick, Canada. She told me the seller is undergoing a divorce and wants to sell the property ASAP. This is also a private sale. This is a duplex that a couple owned but they have recently divorced, the house has been on sale now for 5 months. The couple were living in the 4 bedroom unit and renting a 3 bedroom unit for 900/month without electricity/heat included. I believe in this area i can achieve 1600/month for the 4 bedroom apartment and 1400/month for the 3 bedroom apartment by going to all included (internet/heat/elec). Also the 1600/month and 1400/month are conservative (still need to do further research on this). Based on my cost analysis I can achieve a $600.00 monthly positive cash flow before taxes for the 2 units and also have a ROI of 28.81% if I get the property at list price and pay 20% down. I am currently living in a different city 3.5 hours away but the market here is tough right now, so I would continue to rent in this city and possibly still purchase this property based on the ROI and CAP rate (let me know your thoughts on this). I am thinking as this is a private sale and a divorce sale i will have some room to negotiate price, possibly go with a 180K offer and work from there (if my cost analysis is correct the unit will still cash flow at list price so any gain here is bonus). I have a lot of cash reserves right now so I will still have enough for a second property for the city I am currently living in now. Let me know your thoughts, i am a rookie and this would be my first investment property. 

For exit strategies I think if I can get the house wholesale then i should be ok finding a seller while i would continue to rent out the property. For finding tenants there is a local college near by and also i hear that there is a demand for high quality rentals in the area so i think i would be ok here. I am not sure how easily the existing tenants in the 3 bedroom unit would be to replace to do some light renovations and up the rents but I will play that one by ear and research possibly strategies. I really like the BRRRR strategy but where there is a new property and in good condition on the inside I am not sure how much the property value would increase after what minor renovations the property would require, i still need to research this for the area.


Any thoughts or help appreciated! I am working with a few local gurus in my current city but as i just found this deal tonight i have not had the chance to talk to them about it.

My Cost Analysis:

Monthly Operating Income Scenario A
Number of Units 2
Average Monthly Rent per Unit 1,400.00
Total Rental Income 2,800.00
% Vacancy and Credit Losses 10.00%
Total Vacancy Loss 10.00
Other Monthly Income (laundry, vending, parking, etc.) -
Gross Monthly Operating Income 2,790.00
Monthly Operating Expenses 
Property Management Fees (NA For This Would Do Myself With Local Family)
Repairs and Maintenance 250.00 (Estimating to confirm)
Real Estate Taxes 258.33 (Confirmed from seller)
Rental Property Insurance 140.00 (Estimating to confirm)
Homeowners/Property Association Fees (NA for this property)
Replacement Reserve  50.00 (Is this ok for a new 2003 property?)
Utilities
- Water and Sewer 58.33 (Confirmed from seller)
- Gas and Electricity 208.33 (Estimating to confirm)
- Garbage (NA for this property)
- Cable, Phone, Internet 120.00
Pest Control (NA for this property)
Accounting and Legal (NA for this property)
Monthly Operating Expenses 1,085.00
Net Operating Income (NOI)
Total Annual Operating Income 33,480.00
Total Annual Operating Expense 13,020.00
Annual Net Operating Income 20,460.00
Capitalization Rate and Valuation
Desired Capitalization Rate 10.00%
Property Valuation (Offer Price) 204,600.00
Actual Purchase Price 210,000.00
Actual Capitalization Rate 9.74%
Loan Information
Down Payment 21,000.00
Loan Amount 189,000.00
Acquisition Costs and Loan Fees 4,000.00
Length of Mortgage (years) 25
Annual Interest Rate 5.000%
Initial Investment 25,000.00
Monthly Mortgage Payment (PI) 1,104.88
Annual Interest 9,361.50
Annual Principal 3,897.00
Total Annual Debt Service 13,258.50
Cash Flow and ROI
Total Monthly Cash Flow (before taxes) 600.12
Total Annual Cash Flow (before taxes) 7,201.50
Cash on Cash Return (ROI) 28.81%


The Official Details From Seller:

Asking: $210,000.00

Property Details

Storeys: 2 Building Size:

Lot Size: 1045 Square Meters

Building Size: 2328 Square Feet

Estimated Annual Taxes: 3093.00 (2017)

Unit 2 Presently rented: Rental Income $900.00 /month (not including Power)

Features

Water Front Property (In this small town)

Flooring Unit 1 Laminate and Unit 2 Laminate, Vinyl and Carpet

Foundation - Concrete with 4 foot walls for unit 2 apartment (allows for much natural light with large windows in all rooms)

Heating - Baseboard, Electric,

Other Inclusions - Dishwasher, Fridge, Stove, Blinds, Washer, Dryer in both units~ Taxes, Water/Sewer paid until the point of Sale

Outdoor: Landscaped and water fountain

Roof Asphalt Shingle

Services Electricity, FibreOP High Speed Internet, Telephone and cable/satellite

Water and Sewer ~ Municipality System approximately $650.00 per year

Rooms

Main Floor ~ Unit 1 1260 Square Feet

KITCHEN / DINING ROOM 12’ x 15’

LIVING ROOM 15’ x 15’

LAUNDRY ROOM 6’ x 3’

BATHROOM 6’-6” x 11’-6”

MASTER BEDROOM 10’-6” x 11’-6

BEDROOM # 2 (walk in closet) 9’-4” x 11’-6

BEDROOM #3 9’ x 11’-6”

BEDROOM / Office #4 9’ x 11’-6”

DECK 12’ x 15’

Rooms

2nd Floor ~ Unit 2 Walk Out 1068 Square Feet

KITCHEN / DINING ROOM 10’ x 15’

LIVING ROOM 15’ x 15’

LAUNDRY ROOM 6’ x 3’

BATHROOM 6’-6 x 11’-6”

MASTER BEDROOM 10’-6 x 9’-6”

BEDROOM #2 9’-6” x 13”

BEDROOM #3 10’ x 11’-6”

UTILITY and STORAGE ROOM 9’ x 12’

BABY BARN 8’ x 10’

  

@Andrew McCarthy

Not sure where in NB this property is, but I would use a lower estimation of rents in my analysis.  With student properties in the cities, $400/room (w/o utilities) would be confident price-point.  Once you move away from that market and outside the city core, I would use $300 - $350/rm ($900 - $1400 per unit) in my anaylsis and then try to better that on the ground.

The purchase price (on a per unit basis) also strikes me as high as an investment (... as a mortgage helper, it may be palpable).  If this is a need to sell (due to a divorce), there should be some {downward} movement in the price.

In your operating expenses, confirm all the expenses you can independently of the vendor (property taxes, utilities, etc) and do not forget things such as snow removal and lawn care.

@Roy N.

Thanks for the feedback! This property is in the downtown Woodstock area. I contacted the seller this morning but they are actually in closing now with another buyer. They will let me know if the financing does not go through. That being said I asked if they wouldn't mind telling me what the negotiated price was for if the deal does go through for my own knowledge. They said they wouldn't mind letting me know. 

For the rental prices I might have been optimistic for the area. There is a local community college for potential student tenants but I am not sure how hot the market is for rentals, i will still follow up on this as homework. I replied to a few "wanted Kijiji" ads in the area to get a feel for the market price. 

Can you elaborate on the "purchase price strickers me as a high investment"? Looking at the property assuming I rent out both sides it looks like an OK investment unless you are seeing better deals in the area? Also good advice on verifying the expenses independently, typically for other properties I have checked out I will talk to the tenants directly to get some of these details and ask the sellers for their official billing statements. Do you have any other tips on verifying these items independently of the seller? 

Thanks!

Andrew 

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here