Hey everyone, thanks for the great resource here. I have learned a lot since becoming a member and am about to pull the trigger on my first property. I live in DC so the prices here do not warrant a buy and hold strategy so I expanded my search out to smaller cities in Virginia. I settled on a duplex in Roanoke. Listed at $88k (on the market for 250 or so days), offered $78, seller countered at full list price (umm ok), I threw them a bone at $81.5, and they countered at $82k. Ohhhh k, so I guess I can get it for $82.
The numbers are below
Unit A Rent: $495
Unit B Rent: $555
Unit B Pet Fee: $10 (wow)
Vacancy Estimate: 8.3% (one month/year)
NRI: $972/month $11,660/year
Leasing Fees: $75 (only for turnover, not renewals)
Repairs/Maintenance: 10% ($97/month)
Utilities (water): $80/month
Lawn Care (every other week for half the year): $38
NOE: $444/month, $5,324/year
Mortgage (20% down @ 5.125%): $357
NOI: $528/month, $6335/year
Cash Flow: $171/month, $2049/year
Expense Ratio: 45.7%
Cap Rate: 7.7%
Rent/Value Ratio: 1.29%
Cash on Cash Return: 10.9%
Anything that you guys see I may be missing? Are my numbers pretty solid? Cash flow is not the greatest but the rents are under market right now and the tenants have been there for 2+ years so the vacancy rates are good and I should be able to raise rents when they move on (that $10 pet fee was ridiculously low).
Appreciate your thoughts.
Good job. It is a solid base hit that will allow you to learn without losing much money. Honestly that is the most important return that this first property will give you. This duplex will turn concepts into reality. Enjoy.
It's an OK deal. It's not great. It's not bad. Just OK (based on my analysis, you will make a little over $100 a month and your money will give you a return shy of 9% which is better than the returns you get from CDs). If you are confident you can raise the rents, then by all means buy it. It's not negative cashflow so at least the property can sustain itself as you're raising the rents. Below is the screenshot of the spreadsheet I use to analyze deals. You can download it from the FilePlace here on BP.
In addition to the numbers, you have to do your due diligence. Hire an inspector to give you a list of deferred maintenance items and how much it will cost. You can negotiate a deferred maintenance credit at closing. Also, you can schedule the closing closer to the 1st of the month (say on the 5th), so the prorated rents can be credited to you or can reduce the money you need to bring at closing. How's the crime in the area? Walk the neighborhood at night. Real estate is MORE than just the numbers. Ask me how I know. I made a terrible mistake on a multi family apartment once (the numbers are great but...). I revealed it here in a podcast with Brandon Turner and Josh Dorkin.
Where are you getting your numbers for insurance, water, & lawn care? From the seller? I would definitely verify to make sure this is accurate.
When I'm paying for water/lawn care & snow removal, I just assume that the expenses will run at about 60%. Every time that I've really dug deep into my due diligence, it pretty much always falls around 60-65% with those expenses being covered by me. Using 60% of gross rent, I'm getting $70/month cash flow.
Those property taxes seem pretty darn low for an $80k property, I would be paying about $3,000/year for a similar property where I invest.. I don't know your local market, but double check on that either way.
What is the actual market rent for similar units right now? Do some local research if you haven't already.
Thank you guys for the sanity check. I think a "solid base hit" was the best way to describe this one. I have no illusions it is a grand slam, but I think it is something I can cut my teeth on and I am excited to move forward. I appreciate you double checking my numbers.
@Wendell De Guzman : Good suggestion on the deferred maintenance. My realtor is having an inspector he works closely with perform it so I will be sure that this is addressed. Crime in the area is pretty low, and Roanoke is a fairly low crime area as it is. This property is only a few blocks from the expanding downtown and the street was busy with construction (including H4H home) when I went to see it. I am pretty comfortable with the area for sure.
@Mehran K. : Insurance is a quote from my agent (still shopping around), the water bills were provided by the seller (6 months worth), and the lawn care was provided by the property management company that is currently taking care of it. The RET were verified on the county tax website and by the seller--I guess the taxes are much lower there than where you invest at (another good reason to get out of the DC area!). I think the numbers I used there are pretty solid.
Hi, Nathan, I live in Roanoke and have five single fams and two duplexes. I would need to know what area this duplex is in to know whether or not you have a 'base hit'. I scour the market and have never found a duplex I would own for that price, so unless you got it off the MLS I might be concerned about the area. Is it in SE or NW?
It is on Patterson Ave SW, a few blocks from downtown
How do you like Roanoke overall as an investment area? I really like the prices there! lol if this one pans out I will probably be back.
Unfortunately, Patterson Ave is considered one of the 'no no' areas in Roanoke. There are some gorgeous old homes on Patterson, but they have become so run down and infested with vermin of all sorts, we stay as far away from there as possible. I hate to put it so bluntly, but it is the home of Roanoke's crack community. There will come a time when some wealthy investor will take the torch and renovate the area, but right now no one is renting there that values their belongings, car or well being. There are many areas in Roanoke that are great for investors. I love it here and will be glad to share my knowledge and experience with you. You may contact me any time.
You won't be able to flip it, but it looks like it will bring in solid returns. I would say it's a decent start. But really, the important thing is starting (especially on at least a decent footing).
Another thing, Nathan, is that I don't know where you got your information that the rents are lower than market, but in that area, I was shocked the owners got THAT much. Probably Section 8, I'm guessing, but I also don't know how many bedrooms in each unit. Our Section 8 just got reduced the first of the year, so the rents you quoted would be high for a two bedroom in that area.
Not a bad start at all for your first deal. You have done what most people dream about doing which is start.. A lot of people talk the talk but are so scared/nervous to walk the walk even with all the teaching, podcast, mentors, and online blogs. I applaud you Nathan keep it going!!
@Stephanie W. : It's not Section 8 and the tenants are very pleasant and respectful. I had the opportunity to meet them when I was viewing the place. Perhaps I found a winner in the mess. I am not at all concerned about the quality of tenants currently in there. Thanks for your input though.
Hey, Nathan, did you ultimately end up with this property?
@Stephanie W. : I actually did not. The inspection uncovered some undisclosed foundation issues that were going to be around $4500-$5500 from the estimates I got, and the seller wouldn't budge on the price so I walked.
I was pretty disappointed especially since I have a sneaking suspicion that I was not the first person to find out about them (the current owner bought it in 2011 and it has been on the market for like 8 months).
I'm glad you wrote though because I have been meaning to come back and follow up on this post!
As I stated before, I would not invest in that part of Roanoke. I'm hoping that there will come a time when that area is transformed into her former glory as there are many past time gorgeous old homes there, but the time is not yet. Please feel free to contact me with any questions you might have regarding the Roanoke area.
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