Hey everyone! I am new to REI and new to this awesome BP Nation, but I am absorbing everything like a sponge I hope! I am a well-seasoned equities investor, so that background makes the finance and numbers learning come easy. I modeled my excel spreadsheet after the analysis sticky on this forumâ¦ thanks Dorkins!
OK here we go
This property (among 5 others) could be my first purchase and I would like BP Nation’s wise opinions.
Town’s population is ~20k. This duplex is in a working class neighborhood. It is definitely not a junky ghetto, but not middle class either.
I haven’t gone in the duplex, but I have had some conversation with the owner. I will go in the duplex this week.
Below the spreadsheet are explanations for some of my assumptions. Please check those out while you scrutinize the numbers.
Rent per unit – Fair for the neighborhood. Both units are 3+1. The tenants also just redid their 1 year lease 1 month ago so I can’t raise if I wanted to.
Vacancy – assumed 12% but this town has renters beating doors down to get in places
Management/mowing – I will be managing the property, so this is really just a mowing estimate
Maintenance and repairs – est. this place has some nice stuff in it like almost all hardwood floors, some vinyl.
Utilities – water estimate. I believe this is all the owner pays, but I will verify this week.
Closing costs – estimated 2% of house value
Repairs – only estimated because I haven’t been in them. New roof in 2009 so after this week I may be able to write this one off as $0.
I don't really like the CoC and the cap rate right now. I think I would like to see at least 20%/12% CoC/Cap but I'm not sure. That would put my offer just below 60k I believe. What's your opinion on these figures?
BP Nation, am I going the correct path on this analysis, or am I way off track?
I am very willing to learn, so criticize away!
@Eric Blackford I own 2 duplexes. Your numbers look accurate, but I would reduce my vacancy to 8-9%.
The cash on cash is a little low for a duplex. One of ours gets 32% with a 15year mortgage and the other gets 22% with no mortgage.
Keep in mind when you buy duplexes, you're looking for good cash flow because when you sell them, you'll be selling to other investors who are most likely savvy like you with their numbers. Also, in my area, duplexes don't hardly appreciate at all.
@Kevin Nichols Trying to reach even a 30% CoC with my setup puts the price I should offer at just over $40k. This is a significant discount to owners $65k asking price. The owner has had it on the market for at least a year, and he lives on the other side of the country now, so is this a wise offer? Is there a problem with the financing end of this deal that is hurting my CoC?
I should be able to reduce some of my costs such as initial repair costs estimate, and even reduce maintenance estimates by a little because the place looks pretty solid (mostly hardwood floors and tile and lots of renos in '09 and '12) But even still, the valuation is under $45k.
As far as appreciation goes, I've come to peace with a 0% appreciation rate. Or at least match inflation, since duplexes are often valued at a price/income basis and I plan on raising rent to at least match inflation.
Thanks for your Input Kevin, I hope to read your answers to my questions soon!
I am by far not and expert. I just started out last fall. But this is what I would do:
1.) Look at comps for the duplexes in your area. If there are none, then comps in similar size towns near you.
2.) The owner is an out of state owner and is probably just trying to get out. The amount he'll take is based on his motivation. You should probably even supply a personal letter with your offer indicating you're trying to make a better place to live in your town, you're local so the tenants have a close by owner, etc.
3.) Your financing is OK. If you push it to a 30 year term, you'll get more cash flow...slightly.
4.) What seems to hurt you on the expenses are your $1200 utilities and $840 insurance. Our insurance on a $55K duplex in SC is 499 and we have no utilities.
If you could get it for $55K and get your rents up to $540/month, you're looking at a good 20% CoC.
You'll need to decide what your goals are. My personal goal is 15% CoC.
@Eric Blackford Utilities and Insurance seem high.
@Eric Blackford any updates with the situation?
Hey Kevin, above you mentioned that you did not pay utilities in your duplex. Is that the norm for duplexes? (for the owners not to pay utilities)
@Benjamin Blackburn I think it depends on what part of the country the rental is in.
I'm in SC and it's the norm not to pay any utilities. Each unit is separately metered for electricity, natural gas, and water. The tenants pay the bills and work through the utility companies to do so.
I recommend always factoring property management into your figures. Even if you are self managing (which you had mentioned) and saving the money. The idea behind this rationale is that if/when you decide to be more hands off down the road, the property sustains itself and is still cash-flow positive.
Also, you had mentioned that people are "breaking down doors" to get into the town. Does that mean there is potential to raise rents?
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