My Landlord is selling duplex, potential 1st deal
Hey BP Columbus!
We are hoping to gain insight on our first potential MFP deal.
Our landlord has indicated that he is looking to list the duplex we have been renting for 2 years +.
The MFP is a 1,872 sq ft 2 unit, 3 bed-2 bath on a 4,800 sq ft lot, built in 1910. Value is estimated between 260k-280k. Current rents are $1400. Clintonville neighborhood, red hot market right now.
For this deal, we would want to live in our current unit and rent out the other (1 bed, 1 bath)
The good: New AC, water tanks, windows.
The bad: Needs updated baths, kitchens, refinished floors, paint, deck and landscaping at a minimum, basement is gross.
Also, the upstairs 1 bed/bath unit is occupied by a long-term tenant who is paying well below market rents.
Because this is our first deal, we want to line up home/HVAC inspections, and also have a contractor come through to help put together a reno estimate. This will help us determine the current value, the reno costs and the ARV.
Financing options would include an FHA, a 203K (if it qualifies), or potentially seller financing.
Here are some preliminary numbers I ran: 260K FHA no repairs and current rents on left, 300K 203K, reno and higher rents on right:
| % Down Payment | 5.00% | 5.00% |
| Down Payment | $13,000 | $15,000 |
| Remainder of closing costs | $3,000.00 | $3,000.00 |
| Total Due at Signing | $16,000 | $18,000 |
| Mortgage Rate | 4.60% | 4.60% |
| Length of Mortgage in years | 30 | 30 |
| Monthly Mortgage payment | $1,266.00 | $1,461.00 |
| Taxes | $386.00 | $445.00 |
| Sewer and Water | $50.00 | $50.00 |
| Trash | $50.00 | $50.00 |
| Heat/Utilities | $ - | $ - |
| PMI | $ 180.00 | $ 208.00 |
| Cap Ex and Ops | $200.00 | $200.00 |
| Insurance | $65.00 | $75.00 |
| Mgmt Fee | $165.00 | $165.00 |
| Vacancy | $132.00 | $132.00 |
| Total Expenses | $2,494.00 | $2,786.00 |
| Unit 1 | $500.00 | $700.00 |
| Unit 2 | $900.00 | $1,100.00 |
| Total Revenue | $1,400.00 | $1,800.00 |
| Cashflow/month | ($1,094.00) | ($986.00) |
| Cashflow/year | ($13,128.00) | ($11,832.00) |
| Cash on Cash Return | -8.42% | -6.57% |
I have not talked with the seller in detail yet, as I want to see if this is worth a deeper dive first.
From what I can see, this would not come close to cashflowing until the mortgage is paid down.
Please let us know if you are able to share any thoughts or ideas.
Thanks!
Hello and welcome to this site Nick! I rarely approve buying any single family home (1 to 4 units) because they are very risky, especially to first time buyers. From looking at your math evaluation, it does not look very good. On any rental property I would expect it to show a positive cash flow on day one. Having to "come out of pocket" at all makes it typical to justify it as a good investment.
It looks like the only way to make this work would mean you would have to lower the price down substantially. There sounds like there is much work to make repairs and upgrading. It just sounds like there's too much work that has to be done for the first investment, especially if you have no construction experience.
Good luck to you!
@Nick Quintin I just came across this post so you may have already moved on but your thinking is exactly right. This property would not cash flow standing alone. With you living in one side it MIGHT work. But assuming your not planning to live there for the duration of a 30 year loan you should move on. Interesting scenario when a landlord wants to sell but there will be plenty more deals for you guys to jump on and owner occupy.
By the way, buying your first rental as an owner occupied home is putting you on the fast track to your investment career. My wife and I did the same thing and are still, 16 years later, reaping the benefits from that decision.
I just have one question.....if you want to buy a duplex, is this the best deal out there, or can you buy something better? Answer this, and you will have your first answer toward moving forward.