I would like some input on a duplex I am looking it. It looks like it could be pretty good, but the caveat is I have very little room for negotiation it seems, and it's a little more than I wanted to spend on my first property.
3 bed, 3 bath units, two car garages, ~1400 sq ft with a giant unfinished basement. Units are 9 years old and are in very good condition.
Asking price: $219K
Insurance: $1500 ish
Tenants handle lawn care and pay all utilities themselves.
Both sides are rented for $1150 each. One is a single 53 yr old woman with no pets who travels a lot. The other is a couple with one kid (15 yrs old). Great neighborhood and school district. A sort of up and coming area, if you will.
The property has been on the market 9 days and has seen a lot of activity. Someone even threw them a cash offer and they rejected, so I assume they low balled it. I have asked the realtor to get me some comparable sales in the area. I think 220K is inline with the area though.
Based on the information I know, I don't see them dropping their price much, if any. I always read, "money is made when you purchase the house". So, I am hesitant to buy and feel ripped off. But it seems like these would be great units. It's at the tippity top of my price range however. It would be about $55K cash when it's all said and done.
My opinion, for what it's worth:
The existing gross rents to purchase price spread is what I would consider low for a duplex - expect cash flow after credits for maintenance to be thin.
The 3/3/2 arrangement seems to be overkill for a duplex, especially the third bathroom. I don't know your market price points but I would be concerned with demand when the tenant base will be a family and your property will compete with SFRs.
Nine years old means you are 40-50% of expected life on roof and HVAC.
If you could turn the 3/3 into a per-room rental (ex., college roommates), I believe you could squeeze more rent out of it. Likely more management headache as well.
It's easier to recover from a small mistake than a large one, as you've somewhat already insinuated with your concerns about price and money down.
If 220k is what properties are going for you won't be getting ripped off you'd be getting the property for what it is worth.
Looks like it should produce a 6.3% return.
I am newer to investing and putting together my deal analysis processes has been a focus of mine recently.
My calculations and based on the info you provided above:
5%@ 30 years
Property management, $0
Repairs/maintenance budgeting, $0
Vacancy rate, 10%
Cashflow per door is $270
Cap Rate, 8%
The deal looks pretty good.
Personally, I budget conservatively and include expenses associated with PM, repairs/maintenance and utilities when applicable. $55K is a lot of money to have tied up, but you have to take subjective money into account as well. Is it a quality property? Well maintained? Something a tenant will like to come home to?
If you like, provide your email and I will send you the Excel spreadsheet I used to calculate this.
Thanks for the opportunity to contribute, Chris
have you calculated cash flow based off piti and expected maintenance and vacancies? My quick figures in my head show a $400-$500 cash flow a month situation, which would be about a 10% return. Do you have reserves in place after paying that $55,000 out of pocket? How many properties are for sale in the area? A lot depends on your market and expected returns.
Thanks for your input everyone. I wanted to make sure I wasn't missing something glaringly obvious. I talked to my realtor today and threw down an offer to get a feel for the seller. I offered 200K, plus they pay all closing costs. They countered with 216K, but they still pay closing.
Them paying closing is pretty big for me. I am thinking about offering 210 and seeing if they take it or not.
Not sure what spreadsheet everyone is using. But at 216K using the following:
216,000 price (20% down)
90% occupancy rate
4.5% interest (30 yr)
0% closing costs
7.5% each maintenance and property management
I get about 10% post tax ROI and $1700 post tax cash flow.
I have the cash to make it happen, and I will still have some reserves. I don't mind doing it if it's a good deal, but I would like some final input on it.
I don't plan on using PM initially, but I like to take it into account in case I go that route down the road.
I am using one of the SFH_MFH spreadsheets I downloaded from here.
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