How Much Would You Pay for This Duplex?

Question

Hey guys,
What would your max offer be on the following property:

Duplex (950 sq ft each) - 2BR / 1BA units. 30+ yrs old.

MONTHLY INCOME
Rents: $500 x 2 = $1,000/month.

MONTHLY EXPENSES
Vacancy loss (@ 8% or 1 month): $80
Property Mgmt (@10% only when occupied): $100
Property Taxes: $70 (from PVA)
Property Insurance: $75 (estimated)
Ongoing Repairs/Maintenance (@10%): $100
Cap-Ex/Maintenance Reserves (@10%): $100
TOTAL MONTHLY EXPENSES: $525 (which seems in-line with 50% rule)

FINANCING20% down, 30 year fixed loan, 4.70% interest rate.

Principal & Interest PaymentAt $55,000: $228/month --> Monthly Cashflow (CF): $247At $60,000: $249/month --> CF: $226At $65,000: $270/month --> CF: $205At $70,000: $290/month --> CF: $18

Purchase price will likely be between $60,000 - $70,000, but want everyone's opinion.

REPAIRS NEEDEDAt first glance, minimal repairs seem to be needed:

1.) One unit needs to be re-painted.2.) Flooring likely needs to be replaced (tile).3.) Gutters on outside need fixing.4.) Possible beetle/bug problem.  Saw at least 4 during walk-through.

OKAY, EVERYONE, LAY IT ON ME!

Engelo Rumora · Answer

Hi Mark,

I think you can find a cheaper duplex with a rent potential of $1,000pm.

I wouldn't be paying more than $40,000 - $50,000.

Just my opinion.

Thanks

Mark S. · Answer

@Andrew L. Ouch!  Haha.  Believe me, I've thought of that.  The thing that makes it difficult (which, I guess is simply an excuse on my part), is that I know him personally and he is also involved in the property management company I'm considering using.

@Bradley BenskiYou're correct.  I shouldn't sweat the small stuff.

Everyone else, thank you very much for the comments.  I've decided not to pursue this deal and look for the next one.

Andrew L. · Answer

Fire your realtor for talking back to you. That's why they do what they do and you do what you do.

Bradley Benski · Answer

I can understand your fustration, but that's part of the business.  Everybody needs to provide quotes, get information, etc.  It's just the cost of business.  Bottom line, if the property doesn't make financial sense to you then it's not worth getting into.  You did the analysis and determined what "you" thought it was worth.

Your number didn't suit the seller, that's the way it goes.   Importantly you didn't go breaking your high number just to chase the deal.   So you had to order a police report, pennies compared to spending over 60K for this property..........

Mark S. · Answer

I feel like I'm already getting "beat up."  My initial offer was going to be $50,000.  My agent basically said that I run the risk of insulting them, coming in too low, and then they can choose not to respond.  I said, fine, let's go to $55,000.  He went to listing agent and without us ever formally submitting the offer (which, in his defense, he said he would if I really wanted him to) and basically said, hey, if we make an offer, it's going to be under $60,000; we want to make sure we have a dialogue before we take the time to put it together.  Listing agent told him that they've already rejected offers much higher (high 60s).  He's now advising me to let it go unless I'm willing to come way up.  It just pisses me off because I requested police records (which I have to pay for), had my lender update my pre-approval letter, got my insurance guy to get me a quote, etc.  So, if anyone's time is wasted, I feel like it's mine.

Based on what most of you are saying, even $55,000 is on the high end.  Sounds like I should just walk.  Believe it or not, this is actually a good deal in this area.

Aaron Montague · Answer

Echoing @Jean Bolger 's comments, 60k seems like a good number for this place.  But the spreadsheet does only give the first look.

Is making $250/month worth the headache of the neighborhood? If so, go get the place.  I always come in low and let them "beat me up" to get back to my max price.

Derrick Craig · Answer

$35k at most!!

Jean Bolger · Answer

What type of exterior? That will have a big impact on your long term holding costs. Exterior painting can be expensive and if you don't keep it up the place looks bad and rents go down. Worth it to pay  more up front for brick/vinyl.

And of course the area. $500 for a 2 bd is awfully low-end in most areas. If the area is down-trodden and doesn't look to change, that should pull what you might pay price down. If there's potential for rent increases in the future, that might pull it up.

If you have happy answers to all these questions you are probably safe up to 60k, maybe 65k if the answers are very happy. If the answers aren't so happy, adjust down accordingly or keep looking.

Unfortunately, the spreadsheet can only tell so much.....

Levi F. · Answer

I'd shoot for 50-55. I use my spreadsheets to justify my offers if I get push back. I show them my minimum cashflow, ROI, CAP and explain that's how I have to value thier building. In the most polite and respectful way. Based on $100 per door or % ROI.

Good luck