analyze this duplex

6 Replies

I am planning to bid on a 2 bd/1 ba approx 600 sq ft ea side of the duplex that is in the process of foreclosure (possibly preforclosure).  Property is in lower middle class area of town and property will average $700 each side.

Starting bid $67,000 (no bids so far).  5 day auction.

Property will need stove, refrigerator, hot water heater, pipes for shower, and about 1 foot ceiling repair. Floor tile was in pretty good shape.  Wasn't able to check other half of duplex but repairs will be similar. Plan to follow up this week and have a contractor take a look. 

Will either wholesale the property to an investor or fix it up to rent out.  Just not sure at this point. 

Repairs -approx $10,000

Taxes -approx $170 month

Insurance -approx $110 month

Management fees - $0 (will self manage property which will be a first since it's close to where I live).

Question - are some lenders providing loans to owners with more than 5 properties?  

Hi Thomas,

My question is, if you weren't able to look at the other side of the duplex, how do you know the repairs will be similar? How do you know the kitchen hasn't been torn out, or pipes ripped out of walls, or if it's covered in mold? 

I would be very hesitant to bid on a property that I have not seen. 

There are lenders out there who will lend to someone with more than 5 properties but you'll have to do some calling around. I would start with small, local banks in your area.

Best of luck!

Eric

Hi Eric,

I plan to look at the other side before bidding on it but I was able to look through the windows of the property to check out the condition.  

Thx for the input!

make sure the title is clean too if they are offering a quit claim deed. 

Are the utilities separate? If they are not, which is a lot of the cases for at least water, I would definitely account for water bills. Also need grounds keeping, utilities for common areas if applicable. And vacancy. 

There are lenders who would do up to ten with Fannie. Just need to call around.

Is this a stacked duplex or side by side?  What kind of ceiling damage is it - water induced? I don't know the market your dealing with, and I am a huge cheap skate, so with me (take with grain of salt), Id be hesitant paying $67k for a duplex in a lower class area.  Where im from (Pittsburgh), I think we just pay a lot less for real estate.  For instance, I paid $44k for a duplex in a similar area, turnkey. 

Ive done a lot of rehab work and am a contractor, and I think the condition your describing, $10,000 sounds like it might be less than you think.  Hows the roof and foundation??  When your analyzing property first always look up and down (two essential and most expensive parts of a house particulary the foundation). 

Are you tenants paying all utilities?? Are there separate meters??  Just some things to think about.  Then again, don't over think it, if it feels right just do it.

Income - $1400/month - Expenses (below) = $428/month cashflow

This analysis does not include utilities, so you would have to add that in if you are paying for any of that.

25% down = ~$17,000

~$10,000 in repairs

~27,000 all in cash

$428*12 = $5,136 annual cash flow

$5,136/$27,000 = 19% cash-on-cash return

12% Cap Rate

With the numbers the way they are, it sounds like you have a winner.

Expenses -

Taxes/Insurance - $280

Principal/Interest - $300 (30-year term, 25% down, 5.5% rate)

Maintenance - $140 (You need to include this regardless - one day you may not manage anymore and could cash flow negative if you didn't include it originally).

CapEx - $140

Vacancy - $112 (8%)

Total - $972

Nazz,
Thx! Let me check on that.

Tom