Search a long time and finally found a deal

19 Replies

Just got this bad boy under contract.  Here is the deal, see if you like it or hate it.  I'll take all comers on this one.

Property is on Gateway Drive in Albert Lea, MN, where I own 4 other properties.  It is a side by side duplex, 1100 square feet plus per side, 3 bedroom 1.5 bath, with tenant having separate gas, electric, and water meter (tenants pay all utils).

Original List Price: 139K

My accepted offer:  $118,500.00.

Current Rents: $1500.00

Market Rents:  $2000.00

My Costs:

Finance at 25 year am, 75% of purchase price, or $88K.  Mortgage is $554.00

Insurance $85.00 (thanks NREIG)

Taxes:  $233.00

Vacancy: 5%

Repairs: 5%

Cap Ex:  Needs cosmetics...new countertops, sinks, pergo flooring in kitchen in dining room, minor wall repair, exterior pressure wash (vinyl), minor vinyl repair. I have a handyman in Albert Lea...will get this done all in about 3K.

This is in one of the nicer neighborhoods in town, right next to a golf course, with residential development nearby, market rate rents, and owner/occupied houses, some new development, and some other duplexes.   A nearly identical duplex rents at $1K per side, just next door.  Rents there were $925.00 as long as 6 years ago.  I feel safe going for $900.00

I ran this through the calculator.  Even at the existing rents, which were market rents 10 years ago, this is a 10.40 cap.  I will raised rents to $900.00 a side, two months after acquiring, raising this to a 13 cap.  

Doing the inspection Friday. 

Updated 5 months ago

Update all...mea culpa. Cap ex was way off on this one...my inspector has a better nose than I do. We offered 30K less...doubt they will take it, but it needs about 10-12K more cap ex than I calculated. My good deal drought continues.

Originally posted by @David Moore :

Just got this bad boy under contract.  Here is the deal, see if you like it or hate it.  I'll take all comers on this one.

Property is on Gateway Drive in Albert Lea, MN, where I own 4 other properties.  It is a side by side duplex, 1100 square feet plus per side, 3 bedroom 1.5 bath, with tenant having separate gas, electric, and water meter (tenants pay all utils).

Original List Price: 139K

My accepted offer:  $118,500.00.

Current Rents: $1500.00

Market Rents:  $2000.00

My Costs:

Finance at 25 year am, 75% of purchase price, or $88K.  Mortgage is $554.00

Insurance $85.00 (thanks NREIG)

Taxes:  $233.00

Vacancy: 5%

Repairs: 5%

Cap Ex:  Needs cosmetics...new countertops, sinks, pergo flooring in kitchen in dining room, minor wall repair, exterior pressure wash (vinyl), minor vinyl repair. I have a handyman in Albert Lea...will get this done all in about 3K.

This is in one of the nicer neighborhoods in town, right next to a golf course, with residential development nearby, market rate rents, and owner/occupied houses, some new development, and some other duplexes.   A nearly identical duplex rents at $1K per side, just next door.  Rents there were $925.00 as long as 6 years ago.  I feel safe going for $900.00

I ran this through the calculator.  Even at the existing rents, which were market rents 10 years ago, this is a 10.40 cap.  I will raised rents to $900.00 a side, two months after acquiring, raising this to a 13 cap.  

Doing the inspection Friday. 

 Congrats !. Looks solid on paper. 

Most investors use 8% vacancy and 8% CAPEX (long run). Even with those numbers, seems like a pretty solid deal.

I am a big proponent of Sec 8, and lot of times they pay a little more over market rates (perhaps something you might want to consider) Thee are threads on this debating pros and cons of Sec 8 voucher housing. You might want to research. 

Currently the place is occupied or vacant? Do you have contingency in there to accept is vacant? Inherited tenants can be a nightmare. Its like driving drunk blindfolded. Hope you have given thought to this. 

How are you going to raise the rents 2 months after acquiring? I don't even understand the statement.  Rents are usually set at the beginning of the lease, unless its kind of a month to month arrangement. 

Congrats on another good one, @David Moore ! Looks fine by me, definitely getting the rents up will help substantially.

@Chinmay J.

Tough call on Section 8 on this part of town.  I do like section 8 in this town.  I have one great section 8 renter.  But this area is nice.  On the rents, I get to see the leases this afternoon...part of the inspection period.  If they locked them in for a long term, I will make them pay the difference for not having market rents.  Most landlords in Albert Lea go with month to month.  

So, if they have a locked in rent through, say July, I will tell seller I want compensation for the low rents....something like $300.00 for the three months.  Peanuts, really.  I will get that 13 cap out of this deal.

I've seen a lot of places.  This place is nearly all cosmetic.  A rare find.

Originally posted by @David Moore :

@Chinmay J.

Tough call on Section 8 on this part of town.  I do like section 8 in this town.  I have one great section 8 renter.  But this area is nice.  On the rents, I get to see the leases this afternoon...part of the inspection period.  If they locked them in for a long term, I will make them pay the difference for not having market rents.  Most landlords in Albert Lea go with month to month.  

So, if they have a locked in rent through, say July, I will tell seller I want compensation for the low rents....something like $300.00 for the three months.  Peanuts, really.  I will get that 13 cap out of this deal.

I've seen a lot of places.  This place is nearly all cosmetic.  A rare find.

Never mind then.. I assumed you were a little less experienced than you seem to be. I think I read your title as this is your first deal.. You know what they say about ASSume, right? lol. 

Good luck. 

@David Moore Congrats! Deal looks great. Just curious, how did the deal come across your desk....MLS, marketing, wholesaler, drive by, ect?

@Kevin Martin

It was on MLS. I saw it 60 days ago on Realtor.com, and dismissed it as a terrible deal, due to existing rents, high property taxes, and I had not priced it right. I circled back to it because deals are elusive, and realized, especially after seeing it, and getting feedback from my team in Albert Lea that the area was quite good, and the market rents were higher. I saw a lease loss opportunity on this one. A 2 bedroom/1 bath duplex not far away recently sold for $112K. I thought this being the slow time of year, the lease loss factor, and the generally nice condition of the units really made this an attractive opportunity.

What's sweet about this deal is the lower acquisition price will give me leverage with the assessor.  I believe I can save $400 yearly on property taxes as well.   Every little bit helps.  

We'll cash flow between $350.00 and $400.00 per door.  That is not bad.  

@David Moore That is awesome! So the MLS does work in this market? I always hear all the good stuff is off the MLS but I guess you just need to be persistent and know your local market. Congrats again!

@David Moore Great deal! Nicely done and smart to dig deeper to find it.

Congrats! I'd like that deal in my area. One story duplexes are my favorite.

Good luck on getting the assessor to come down that much. I haven't heard many people with luck in doing that. Maybe it is easier down south though.

@Chinmay J.

I got the details on the leases.  One tenant is moving out end of this month, so that unit is ripe for rehab.  On the 2nd, and this one miffs me, the landlord, who had listed the property back in September, signed a new tenant as of 12/01/17 to a 9 month lease.   I find that super annoying.  What were they thinking?  The inspection is tomorrow.  Now, their lease has something in it that says the tenant has to move out if the property is sold, but I don't think that is right.  Why should the tenant be harmed?  I'm going to negotiate for the seller to put $700.00 into the closing costs to compensate me for the lost market rents, so that the tenant can stay until 08/31/17 at their same rent.  The seller should pay for this, not the tenant.

Originally posted by @David Moore :

@Chinmay J.

I got the details on the leases.  One tenant is moving out end of this month, so that unit is ripe for rehab.  On the 2nd, and this one miffs me, the landlord, who had listed the property back in September, signed a new tenant as of 12/01/17 to a 9 month lease.   I find that super annoying.  What were they thinking?  The inspection is tomorrow.  Now, their lease has something in it that says the tenant has to move out if the property is sold, but I don't think that is right.  Why should the tenant be harmed?  I'm going to negotiate for the seller to put $700.00 into the closing costs to compensate me for the lost market rents, so that the tenant can stay until 08/31/17 at their same rent.  The seller should pay for this, not the tenant.

Why is it not right? A lot of leases have that provision. Its not about harming anyone. You are not throwing someone out on the streets. If I were you, I would not renegotiate for couple of reasons. It will allow you to put in someone that YOU have vetted, and it will allow you to properly address any rehab requirements necessary for the property without deferring it any further.  It might mean cost savings for you if you are getting one of the units rehabbed anyway. 

Its actually a pretty smart thing to have that provision put in the leases. 

David,

Sounds like you are making head way. I am from Waterville MN and I am familiar with Albert Lea. Always nice to hear fellow investors from nearby moving forward.

The deal sounds great. Sounds like you won’t have any problems finding tenants and making the property cash flow.

I wish you all the best and if you ever need anything do not hesitate to reach out. It’s always nice to have someone to bounce ideas off one another.

All the best.

@Chinmay J.

You are right....I have to get my business cap back on.  Yes, they put it in the lease, and probably because of this very reason.  

I'm guessing the previous owner put in a Sept lease date so they don't need to move people in/out in the winter. I would prefer not to deal with the winter maintenance and prospective tenants trampling snow through in the winter if possible.

Couldn't you just sign a new lease agreement of your own with the current tenants to keep them in the home? I would prefer to have tenants on my own lease agreement as opposed to one from another person anyways.

Originally posted by @James W. :

I'm guessing the previous owner put in a Sept lease date so they don't need to move people in/out in the winter. I would prefer not to deal with the winter maintenance and prospective tenants trampling snow through in the winter if possible.

Couldn't you just sign a new lease agreement of your own with the current tenants to keep them in the home? I would prefer to have tenants on my own lease agreement as opposed to one from another person anyways.

New lease with old tenants is just old wine in new bottle. Old habits are hard to break. You, as a buyer, don't know what criteria were used when the tenants were allowed to rent the place. A lot of times, the criteria is first come, first serve.  You want to buy the property, not the headaches of the old landlord. 

That's awesome! I've always wondered about Albert Lea. My impression of it has always been yes there's cheap houses but will anyone actually pay the rent?! Apparently yes!

Hi David

I’ve been looking at Albert Lea for a couple months. I think I know the property you just bought and wish I would have considered a lower offer, congrats on being more experienced than me and pulling the trigger.

For the area, population has been stable for 50 years, blue collar/white collar mix and my favorite (sarcasm) part is home values are all over the freaking place. I think I have paralysis by analysis on the area.

What made you pull the trigger in the area? Do you intend to buy and hold for a long time? Who do you use as a PM? I met some people down there and a PM when I drove down 10 days ago to look at some homes and duplexes.

Thanks!

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