How much would you offer on this duplex?

13 Replies

Hey gang, 

We recently got a lead on a duplex from a guy who wants to move to another state to be closer to his kids.  I've never done an evaluation on a rental property and I'm deep in the throes of analysis paralysis. If I may I'd like to throw some details at you and I welcome any advice you might have. 

He never told me how much he wanted for it, he only asked that we make him an offer. The tax records tell me that he bought it in 2006 for $140,000. He also said that he took out a second loan on it and understands that he may have to put up some money to get out. He's not expecting retail pricing. 

He had it listed last year for $189,900 but then the listing was removed. This year he had it listed for $179,900 and then it was removed. 

It was built in 1920 and each side has 2 beds (plus one bonus room) and 1 bath. The appliances aren't super old but aren't new either. The entire place is all very well maintained. In fact, they had a fire about 5 years ago in the attic so they had to replace most of the roof and have everything inspected and brought up to code.  

One side has had the same tenant in there for the last 15 years and he's paying $1000 a month. The other side is about to have a new tenant in there (who is about to sign a year lease) for $1200 a month. 

Taxes are $8248.50. 

Each side is independently metered for all utilities. 

We have one completed flip on the market now (which is under contract and on the way out) and another flip in progress. We weren't planning on holding any properties right now so we'd like to wholesale this place out, if possible. 

What are your thoughts on this? 

Oh sorry, I forgot to mention that the comps are all over the place. I don't feel super confident in them. The closest things we could find were townhomes that went anywhere from 134,900 to 170,000. 

First thing that comes to mind is $179,900 (his last listing price) less realtor fees (6%) brings it down to $169,106.  Let's just start here.

The 1% rule:  Quick rule of thumb is to take 1% of the purchase price = $1,691 to make a profitable cash flow.  If buying for $169,106, your cash flow would run 1.3% based on the $2,200/month rental income.  Just based on the "quick & dirty" analysis, it sounds like you might have a "cash cow" opportunity.  This would be an excellent property to keep in your real estate portfolio.

1) Taxes seem extremely high on the property - why?

2) What are the market rents for the area - check Craigslist, Postlets - he's had the property for almost 10 years and the rents might be extremely low (based on the extremely high property taxes).  Again, another reason to keep the property with huge potential to have higher rents.

I'm going to stop there and see what you think?

Patti

$8348 in taxes? That's outrageous. 

That's NJ....extremely high taxes

@Kyle Boughton @Mike Shay It's true. NJ's taxes are obscene. But as it turns out, I noticed on the tax assessors web site that they had originally assessed it at 225 but this year they lowered that number to 195. The lady at the tax office said the new rate should equate to a tax bill of 7200 a year (starting in July). That helps a little. 

@Patricia Newman thank you so much for taking the time to answer. I've taken a look at what rent is trending for in that area and he's right where he should be so no gain there. Also, I'm having a hard time feeling confident in the 1% rule because all of my other calculations are showing that the property would be worth a lot less. Here's what I got:

Lets say we purchased it at 120,000 and put 10% down. Financing 108,000 @ 5% over 20 years gives us a monthly mortgage payment of $713. 

So then:

INCOMING-  Rent  $2200

OUTGOING

Debt service- $713

Taxes- $600

Insurance- $291.17 (or $3500/yr. This place was built in 1920)

Vacancy- $176 (@8%)

Repairs- $200 (or $100 per unit)

TOTAL- $1980.17

Cash flow - $219.83

I think that's pretty good. If you ran the same numbers but paid 170,000 (his original asking price) we would have a monthly debt service of $1,010 which would put our cash flow in the red by $77.17.

Does that sound right to you? Do you think I'm missing anything? 

Dan, shoot me a message. I am in South Jersey. I am sure I can give you some help.

Also, on a duplex in NJ cash flow of $219.00 is very low IMO.

We shoot for SFR $75k and under, renting from $1200-$1300/mo. for a cash flow of S400+.

On a duplex in NJ, we would not consider a a "door" if it flows under $280. (And that is pushing it, unless there is another mid-term exit play)

Looks like your New Jersey BP friends are offering to help - I love BP!

Good Luck, Dan.  We're here to help you buy the RIGHT property and stay away for the money pits!

Patti

HI  Don  

taxes would be around 700$ ,no 600 

and  if vacancy is more than 8%?

You should hit up Dennis. Sounds like he's got some knowledge of the area. Man those taxes would kill me though. Talk about cutting into profits. Good luck. 

Thank you so much guys! I feel a bit more confidant about analyzing rentals now that I've gone over one. 

@Dennis Pressey Jr I'm looking forward to hearing about your system! 

@dan nowakowski

No problem. Shoot me a message.

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