I have a duplex under contract in Ogden Utah. It is a 2/1 with 700 sq/ft per side. Asking price was $154900 and offered $144900 and was accepted. Roof needs to be redone. One side had a tenant who smokes in the unit. I am thinking about removing both tenants asap and trying to get the smoke smell out but removing all carpet, whipping down down every surface, getting ducts cleaned and running an o-zone machine if needed. There is about $16,000 worth of work that I can calculate from paint and new flooring. I am pretty sure the seller will not budge on price anymore. I need help determining if this is still a good deal.
Sale price: $144,900
Rehab: $16,000 including new roof (roof is about $8,000 and has 2-3 years left so doesn't have to be done immediately)
Down payment (25%): $39,500
Debt service: $711 PITI, HELCO payment $326 (interest only would be $118 but want to pay back principle ASAP) . Total: $1,037'
Current rents per side: $600. should be able to get up to $700 with rehab.
Cash after debt services: rent $600 per side- $163
rent $700 per side-$363
In this area, its difficult to find deals in the 1% rent to purchase price ratio.
Let me know what everyone thinks. Am i missing anything? I will keep all cash after debt services till i build up a nice cushion, then start putting even more towards HELOC principle since it is a variable rate. Thanks!
It sounds like a deal with a thin margin of error. I suggest accounting for vacancy, maintenance, and property management fees. Even if you plan to manage yourself, this should be accounted for to accurately asses the investment, because if you were to sell it another investor would calculate this into the cap rate. I'm happy to discuss further, let me know.
Ideally (i know things don't always go ideally) maintenance would be mitigated by initial repair. Vacancy also would be minimal early on with both sides being occupied currently and the area being renter heavy. I know i can improve my cash flow by just paying the interest only on the HELOC early on till i have a good chunk saved for those expenses. Currently planning on self management until HELOC is paid off and then will have more cash flow to move towards management company if I want to.
This is our first property so i am willing to get less of a return to learn as i go. Also the market here is pretty difficult to find properties with good rent to purchase price ratios.
If this is stupid of me, please let me know.
Did you run it through the Bigger Pockets Calculator yet?
Definitely agree with Jon Neviaser its a thin margin of error. What area of Ogden is this Duplex? I'd factor in the desirability of the neighborhood as well.
I know the 1% rule is tough to find in the SLC area but I'd argue the long-term fundamentals of the area are much better than similar cities in the US.
Its a very thin deal for Ogden if it is near the city center. On the nicer outskirts it could be more attractive, but it still doesn't cashflow once you account for maintenance and property management. Why are you going with a heloc? Try to get a fixed rate 30yr for the whole property if you can. For the purposes of cash flow calculations I will plug in 100% financing over 20 year amortization and take 35% for expenses (PM, CAPEX, Maintenance, Utilities). This builds in a cushion and if it still looks like a good deal, I will look at the property further.
If it's the nicest house on the street I'd pass. If it's the worst house on the street then there is pleanty of value you can add and I'd jump at the deal. First always ask if they can help you our on the roof on other expenses. Won't hurt.
You also missed a couple things: You'll most likely be paying for the water and the sewer, garbage as that's typical for around here. Water could be 100/month depending on where you are for a duplex.
Also if you can pay cash for the place with your heloc than I would do that, fix it up, raise the rents, then get the appraisal and conventional loan. You'll probably find out that it will appraise for 200K+ and you'll have cash in your pocket after all is said and done.
Hope that all makes sense.
I'll take it if you don't! ;)
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