6 Duplexes, 10 Additional Lots, & 10 Acres in Texas

[Colby Brown]

I have an opportunity to buy 6 nice 2,600 sf duplexes within 15 miles from my home.Five of these duplexes are 3 bedroom and 2 bath, and one duplex is a 2 bedroom and 2 bath. They are all brick and have plenty of curb appeal. The 10 additional lots are ready to build on and an additional 10 acres borders the property. You would own the entire street. All 12 doors are currently rented, and the rental competition in this town of 3,000 is slim to none.

Price = $700,000

Taxes and Insurance = $2,000 per month

Rental Income = $8,700 per month

If purchased, I plan to pay down 20%...

Would you consider this deal? I look forward to hearing from you all and THANKS in advance for your input!!

Respectfully,

Colby T. Brown

[Mike H.]

I would definitely consider it. You're going to put 140k and will owe 560k based on what I think I understand you're proposing. Your mortgage will likely be about 3,500? Add in the 2k/mo for taxes and insurance and you're at 5,500/mo. 12 doors and 150/mo in repairs and vacancy and you're at another 1800/mo for that (roughly). Thats 7300/mo and you'd get 8700/mo in rents. Net 1,400/mo or 17k a year on 140k investment? Thats about 10% return on your money there. Plus you'd be getting principal paydown and appreciation. 

But here's a question I would ask. What is the stuff actually worth? i.e. what do you think the package will appraise out at?

One thing I might consider would be to buy the pieces with 3 separate loans. 1 loan for the duplexes. One for the addtnl undeveloped lots and one for the 10 acre parcel.  And see if you could load up more of the purchase price on the duplexes.

Lets say the duplexes are more like 550k and the lots 75k and 10 acres 75k (total 700k)
I'd try to get a loan for 600k on the duplexes, 50k for the lots 50k for the 10 acres. You do 3 separate loans and put your 20% down for each loan.  Then I'd turn around and sell the lots and the 10 acres.

You'd still end up putting down your 140k. 110k for the duplexes (leaving you with a 440k loan) and 10k and 10k on the other two.  Now I'd turn around and sell the lots and 10 acres for the 75k apiece that they're worth. That would net you 35k apiece when you pay off the loans (40k each) at the closing or 70k total back in your pocket.

Now your actual out of pocket is only 70k instead of 140k and you still own the duplexes. The duplexes are what are going to make you money. The lots and land are only going to add to your taxes and mortgage expense.

The reason I'm breaking up the loan into 3 loans is to allow you to sell the lots and the land without having to deal with breaking up the loan. 

But if you could do something like that and sell those lots and 10 acres, your mortgage payment would be less because your mortgage amount on the duplexes would only be 440k (550k value minus 20% down) as opposed to a starting loan balance of 560k and your taxes would be less because you wouldn't be paying taxes on the lots or the 10 acres.

I'm guessing you might save between 600 to a grand a month in cash flow if you could sell those other pieces. Obviously the value of the land and the taxes are something I have no clue about. But the overall idea might be worth looking at.