Duplex deal; flip or rent, or neither?
Hey all,
I didn't expect to be posting in this area quite so quickly but we ran into a particular deal in the area that I couldn't ignore and I wanted to get some input in it before the offer went in. First, the numbers for this duplex:
2 units, 1 br/1 ba each
$20K asking price
$20K rehab
Comps in the area are $45-50K (lower-class neighborhood near the city)
Rents of about $400/325 (both are 1 br/1ba but upper floor is smaller)
Offer $12.5K cash
Now for the story behind the numbers: The house is held by a Californian company that suddenly decided to sell its properties. I don't know the reasoning but it holds three properties in the area and is selling them all at once. They had an ad in Craigslist that made it clear that they would take cash discounts but it was pulled from the site when they went with a realtor instead. The realtor had not had time to even look at the property when we were on the scene; neither he nor the owning company had keys to the house and he had to get a locksmith to let us in. The inside is impressive for a house that has been vacant a while; no funny smells, clean rooms, basically just requires cosmetic work. It does need new siding because somebody stole some of it from the house and garage.
I estimated $20K rehab because of the siding and because I want a nice, fat rehab budget (for the area) in case something goes wrong or we've missed something horrible, but the circumstances of the selling suggest that there's nothing really wrong with the house, the company is just pulling out of the area. If we get our low offer accepted, that's still about 70% of ARV even if we eat the entire budget up.
We're not sure if we're renting the place out yet or selling. My first instinct is renting, since even with the assumption of 50% of income as expenses and amortization of $32K at 7% is $213/month which still allows about $150/month cash flow. I'm not the money man in the deal but my understanding is that a HELOC would be used to make the deal happen.
So thanks to anybody who made it this far. I'd like to first ask the more experienced investors what I missed here, information-wise. Secondly, with the information as-is, is the offer reasonable? The worst they'll say is no, and they probably will but I won't mind getting turned down since that's all we want to pay on the property. Thanks in advance!