Charlotte, NC · Member since 2014 · 26 posts · 3 votes
Hi everyone, i'm just about to close on a duplex investment property i've been looking at for a few weeks and I wanted to get some feedback on what everyone thinks, here are the details:
Property: Duplex, both sides are 3 bed/2bath, good area (close to downtown, shopping, good schools). Zipcode 28270 in Charlotte, NC
Price: $275k (originally asked for $325k)
Loan: Putting 25% down (yikes!), including taxes and everything, total monthly will be about $1400/month (includes maintenance)
Currently rented: $1925/month total (950 on 1 yr + 975 on month to month)
Both sides haven't been updated since 1988, so it doesn't show well, but structurally, it's perfect. Also, I think since it shows so poorly, that the rents are super low. After it's updated, I think we could get in the $1100 to $1300/month range for each side. Both sides could probably use about $5 to $8k to make them look good.
You should still factor in 10% for property management, even if you plan to do it. At some point in your life you will want to get out of managing properties and at that time you don't want your cash flow to disappear just to pay a property manager. Logan is also right, homeowners insurance on a duplex is higher than a SFR. My broker quoted me $600 a year when estimating my monthly payment, and when I called around it was a totally different story. More like $600 per unit, depending on where you live. Also you still need to budget for capex because you property isn't just updated once and is good forever. Every major system in the home has a limited lifespan.
It's good to post your analysis on here and get feedback from others. You will learn a ton and also save yourself for headaches in the future. I wish I was on BP before I bought my first property! Best of luck.
Renter · Santa Fe, NM · Member since 2015 · 18 posts · 3 votes
11y
I think if you ran your number correctly it's a good investment. Interns of the rehab are you going to wait till the tenants move out? Whats the average rent for a 3/2 in the area?
Charlotte, NC · Member since 2014 · 26 posts · 3 votes
11y
For rehabbing, yes I would wait until they're out. No need to spend extra at their current rental rates. For average duplex rent's in the area, i'm seeing things around $1150, $1250, $1295. For a similar sized house, we're looking at $1400, $1495, $1600. It's an elderly couple that have owned it for the past 25 years and it seems like it's at the bottom of their priority list. They just haven't pushed to increase the rents or make updates.
Investor · Carmel, IN · Member since 2014 · 332 posts · 245 votes
11y
Every market has different cash flow dynamics & different price levels so it is hard for someone outside to provide a definitive opinion. The one question I would ask is ... how does the sales price of $275k compare to sales comparables for duplexes in the area?
Realtor · Gallatin, TN · Member since 2009 · 292 posts · 164 votes
11y
How old are the majors? Roof? HVAC? Water Heater? Appliances? etc...
On the surface, with how it sits ~ It doesn't look like a good deal to me. Not being updated in 30+ years plus God knows how much deferred maintenance ... That price just doesn't sit well with me.
If it was $275k rehabbed, all majors replaced within the last few years, and you could capture $2400 right off the bat ~ I'd be a bit more intrigued, but I would still look to see how I could improve the ROI.
IMO ~ I'd shoot high on your rehab estimates, account for a new HVAC (x2) and roof, and put all that information in to an offer. Explain that the deferred maintenance and below market rents is the reason for the offer and see where you go. At face value, I'd shoot for $200 - 220k ... Remember, Duplexes have a much smaller buying pool, and therefore, smart investors won't be offering top dollar.
Charlotte, NC · Member since 2014 · 26 posts · 3 votes
11y
@Logan
- I'll be CF positive day 1, how do you figure it won't make money? From a monthly perspective, total Income = $1925, total expenses = $1400....$525/month positive CF pre tax.
@Matthew
- There's only one other duplex that sold in the area recently and it went for $258k. But, it was much, much smaller. Single family homes are going for $295, $300, $325k. There are even homes within a few miles that are going for $500k+
Renter · Santa Fe, NM · Member since 2015 · 18 posts · 3 votes
11y
I think once you do the rehab you will obviously see a better ROI. Just don't over do it on the rehab stick to, in a sense timeless changes if that makes sense. How long you have left on the 1 year lease
Charlotte, NC · Member since 2014 · 26 posts · 3 votes
11y
New roof was done in 2010, HVAC looks good (Trane), water heater I haven't seen yet, windows are good and appliances are ok. I would definitely get new appliances when they move out. I'm assuming total expenses to get the place up to speed after one side moves out is around $5 to $8k. I also had them pay for home warranty.
As for a purchase price, I don't think they would go from $325k to less than $220k. I think maybe at best case I can a few extra grand out of them after inspections.
Specialist · Fort Worth, TX · Member since 2014 · 528 posts · 226 votes
11y
market dynamics are what they are but it still comes down to income minus expenses. Your current rent roll definitely doesn't support your current offered price. The expenses you have on paper are just that, paper estimates. Most likely the cash flow will be more around 200/month. Even at 525/month you have just capped a COC of 8.7%. No thank you.
Investor · New Britain, CT · Member since 2014 · 49 posts · 18 votes
11y
Can you break out the expenses for us? Do you know if the landlord has to pay for water or electricity for common areas or external lighting? Have you also factored in 10% for property management? How about lawn care? It seems pretty tight. Also, how did you estimate your rehab costs? If the place cosmetically looks like 1988 it might cost more than you think.
Real Estate Investor · Federal Way, WA · Member since 2013 · 21 posts · 5 votes
11y
A cap rate of 9% in my market isn't bad. You're cf positive on day one like you said. I think your cash flow might be a little smaller than you think, but yeah. It's safe and not a bad deal in my market. Not sure about your market.
Charlotte, NC · Member since 2014 · 26 posts · 3 votes
11y
Today
Future
Yes - they payback period is long. But, i'm looking for the best rate for where to put my money. 13% ROI is pretty good to me and I've got a positive Net Present Value
As far as purchase price - it should be NOI/Cap rate...in my case I come up with a price of $295k...
NOI: (1925*11 = $21175 at current rent, minus operating expenses ($3500/yr super conservative) = $19675
Investor · New Britain, CT · Member since 2014 · 49 posts · 18 votes
11y
The only operating expenses that I see in your spreadsheet are taxes, $100 maintenance and home insurance. Nothing for capex, management, lawn care, utilities, etc.
Charlotte, NC · Member since 2014 · 26 posts · 3 votes
11y
That's correct on the maintenance - there is no lawn, I'd manage the place myself, the utilities are on the tenants, the house insurance is covered in the $1400 monthly mortgage payment, and I took the one time costs for capex in the first model (but for only one side getting renovated).
Side note - I am appreciating all of the input from everyone.
Have you received a quote on the 50/month for landlord insurance? I think that is pretty low. I typically estimate around 1200-1500 on a duplex then get an actual quote once I'm further down the line in negotiations.
Even though you are managing the property your self, you should be paid then COC should reflect that PM payment, therefore reducing your NOI
You should still factor in 10% for property management, even if you plan to do it. At some point in your life you will want to get out of managing properties and at that time you don't want your cash flow to disappear just to pay a property manager. Logan is also right, homeowners insurance on a duplex is higher than a SFR. My broker quoted me $600 a year when estimating my monthly payment, and when I called around it was a totally different story. More like $600 per unit, depending on where you live. Also you still need to budget for capex because you property isn't just updated once and is good forever. Every major system in the home has a limited lifespan.
It's good to post your analysis on here and get feedback from others. You will learn a ton and also save yourself for headaches in the future. I wish I was on BP before I bought my first property! Best of luck.
Greenwood, IN · Member since 2013 · 346 posts · 93 votes
11y
On a cash flow basis. This is not a good deal.
Lets say you get 4.5 percent on 30 yr. P/I is 1045 a month.
Lets say you get to the 1100 a side. That's 2200 a month in gross in come.
Using a reasonable operating expense percentage of 50 percent. 1100 of that 2200 will go expenses(capex,taxes,insurance,repairs,vacancy,PM) That leaves a net cash flow of 55 dollars a month. So the property will pay for itself, but there isn't anything left over for you at the end of the month. If this is a high appreciation market, where that is what you are betting on, then go for it. But if this is a cash flow play, then you need a cheaper price or higher rents. Yes, if you do PM, you may gets expenses down to low 40 percent range. But that's a part time job for you, and eventually you may want a PM to take over. Just things to keep in mind.
Omaha, NE · Member since 2014 · 201 posts · 85 votes
11y
@Peter Mikhjian all utilities on tenants: how about water and sewer? usually duplexes only have 1 water line coming in therefore this utility portion is paid by the landlord. does it have 2 water lines coming in with 2 separate water meters? usually its just the gas and electricity thats separately metered allowing tenants to pay those
Realtor · Gallatin, TN · Member since 2009 · 292 posts · 164 votes
11y
Couple other things:
1) In your estimates ~ you have 4.25% listed as interest ... Is this legit?
2) Insurance at $50/month? That seems awfully cheap ~ Especially on an investment rental nevermind a duplex. I'd seriously consider adding an umbrella on top of this and make sure this quote or estimate is legit.
3) Property Tax out that way sure ain't cheap. For Reference: Our $300k rental home pays $1714 annually in Prop Tax.
Specialist · Fort Worth, TX · Member since 2014 · 528 posts · 226 votes
11y
To use a blanket 50% rule this far into the Anaylsis is very accurate. Here are few expense items you need to know almost exactly: Taxes, Insurance, and your financing. A monthly CapEx allowance of roughly 300 for both units should be set aside. Then factor in your markets typical vacancy rate and maintenance expenses. Also decide how much should be getting paid for this part time job of managing the property, I would say some where around 8%. A true PM on only 2 units is going to charge upwards of 12% once you factor in leasing fees.