Deal or No Deal?

Question

More for practice and opinions. 850 W Forest Dr, Mustang, OK 73064 Duplex behind good Elementary School. Listed for 86 days at $325k.3bed/2 bath each side. 2768 sqft. One side leased MTM at $1050 other side vacant. 1999. Taxes $2419. Without seeing it and if I had the funds I'd offer $292k 10% lower. Could this be a good deal? There's another duplex right next to it same info One side rented $1195 other $1000. Id think the rent would be along the lines of maybe $1350 ea side maybe even $1200.

Drew Sygit · Answer

@Brandi Smith here's a comparable rental by beds/baths/sq ft/locationhttps://www.zillow.com/homedetails/175-Bison-Court-Way-Musta...

Whoever listed the property you're interested in should be fired!- 3 beds & 4 baths?- No sq ft per unit?- ONLY ONE PIC?

This property will sit and sit and sit - creating more opportunity for you!

Recommend offering seller-financing on BOTH properties.- 10% down- Pick term that both:--- Leads to properties cashflowing for you--- Covers seller's PITI payments- 3-5 year balloon (or longer)

Highly likely your offer will be rejected, but keep checking in with agent every 30-days.

Property has been on market for 87 days and seller will only get more motivated as it sits longer.

DO NOT GET EMOTIONALLY INVOLVED WITH THIS DEAL!

Figure out your numbers and stick to them, ALWAYS be prepared to walk away.

Keep looking at other deals.

Joe Villeneuve · Answer

What are the sale comps in the immediate area for the same duplex?  That sets the value, not what you want the value to be. Same with the rents.  Your rental comps are set based on the duplex next door. Unless there are rental comps in the same area that are in the 1200 - 1350 range you want, you won't get it.  No matter what rehab you do. What drove you to thinking you should offer 10% less than the asking price?  Whoever told you to do that, stop listening to them.  Setting an offer that way is for people that have no idea what the property is actually worth.  Offer what the property is worth to you based on the sold comps as your ceiling, and what the maximum you can offer based on the monthly payment allowed.  That payment number is based on subtracting the cash flow you need (always start there as a cost), monthly taxes and insurance from the rent(s).  What's left is your maximum mortgage payment.  DON'T increase the downpayment to reduce the monthly payment.  All your doing is paying that extra payment upfront.

Same with the rents.  Your rental comps are set based on the duplex next door. Unless there are rental comps in the same area that are in the 1200 - 1350 range you want, you won't get it.  No matter what rehab you do.

Denise Supplee · Answer

On the surface it could be decent, but it really comes down to realistic rents and condition. If you can truly get each side to roughly 1,200–1,350, the numbers start to work, especially with one unit already vacant. At 86 days on market, a lower offer like 292k isn’t unreasonable. I would verify actual rent potential, check for any deferred maintenance from a 1999 build, and run numbers with conservative rents first. If it still pencils at the lower offer, it’s worth pursuing.

Dominic Marshall · Answer

To answer your question more accurately, I need a bit more detail, as what constitutes a good deal varies from one investor to another. Understanding your specific investment goals would help tailor my response appropriately. That said, how are you planning to finance the property, or are you buying it all cash?

I'm happy to assist with underwriting, including:

Gross income (rental comps)

Minus Expenses (e.g., property management, vacancy, reserves)

= NOI

Minus Capex

Minus Debt (based on your financing method)

= Distributable cash flow (positive or negative)

On the equity side: What have comparable properties sold for? Are your comps accurate? Are you overpaying or getting a good value?

A key number to understand is what's your total project capitalization and is this above recently sold comps?

Brandi Smith · Answer

Worst case low rent.

Casey Eiland · Answer

At $292k, it could work, but only if your rent assumptions are accurate. Right now the property is underperforming, so the upside comes from bringing both sides to market. If you can realistically get $1,200–$1,350 per side, you’re looking at $2,400–$2,700/mo, which puts you around a 0.8–0.9% rent-to-price ratio — workable if taxes/insurance aren’t too high and major CapEx is solid.

Key things to confirm: true rent ceiling for 3/2s in Mustang, condition of major systems, and how quickly you can turn the MTM tenant. If those check out, $292k is a reasonable offer for a value-add duplex.

Dan H. · Answer

I question how much underwriting the various posters have done.

Your rent points seem to be fairly accurate as virtually all recent comps have the rent between $1144 and $1306.   However, rents have fallen over the last year.

Do you like to work for free?   That is in effect what you are doing when you allocate $0 for PM.

Your maintenance/cap ex is far too low for 2 units (~4x low) if trying t allocate sustaining costs.   The lower the rent, the higher the maintenance/cap ex to rent ratio.   2 units has close to double the maintenance/cap ex as a single unit.

The reality is that maintenance/cap ex has more an inverse relationship to rent than a straight ratio.   Two 3/2 homes, one in class d renting for $1.5k/month, the other class a renting for $6k/month (slightly accurate for my market), which do you think is likely to have the higher maintenance/cap ex.  It is not the one with the higher rent.

At your rent points, high LTV residential RE would have negative cash flow at 1% monthly rent ratio.  If I use $1250/month rent  (the midpoint of the likely range) your ratio is $2500/$300,0000=0.83% ratio.   This purchase will be cash flow negative at high LTV at today’s standard rates when properly allocating for sustained expenses and I would be interested in any underwriting that depicts otherwise.

Mustang has decent appreciation for this century (3.77%/year for this century), but this property’s price reflects an appreciation rate near or below the inflation rate.  The duplex is priced a little below the area’s median home price.   I would not rely on this property appreciating significantly above the inflation rate.

Now for the question… not a deal but with a long hold and the use of leverage this could provide an ok return and good learning opportunity.   I suspect mag 7 will out perform this property by a wide margin and less effort, but Mag 7 would not provide any education that can be leveraged on subsequent residential RE purchases.

I personally would not consider this for a second, but is it the best you can find in your market?   If you want to be a successful RE investor you have to start somewhere.

Good luck

Brandi Smith · Answer

If we said it went for $300k with 10% down, here is my calculator based on info I could find. Worst case rent $1150 each side, added estimated insurance,vacancy, maint,capex.  Other similar homes are about $1400 with bigger sq.

Brandi Smith · Answer

Thank You. I've been reading up on process if I were able to do this and what it would take to increase rent to fair market. I am new with 1 rental and it was my first bought house so definitely still learning.

Brandi Smith · Answer

https://www.zillow.com/homedetails/850-W-Forest-Dr-Mustang-O...

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