I first came to BP about 3 months ago and have become an ADDICT. Forums, blogs, podcasts...I can't get enough! My wife calls BP my "other" wife.
I have three duplexes under contract that I'm very excited about. The first one just got inspected and I'm waiting on an appraisal. I was hoping to get some perspective from the more seasoned guys on my deal. I'm buying in an LLC since I have a partner. The property was remodeled down to the studs 9 years ago. Inspector said it's one of the nicest duplexes that he's inspected in the last several years. A couple little things that we'll need to fix, but nothing that we're even going to ask for from the sellers.
I'm 35, with a solid income stream, so I'm using 15-year amortizations on all the properties. I can keep adding in my own cash flow to continue buying, and I want the properties to be paid off when I'm 50-55.
Here's the nuts and bolts:
Purchase Price -- $144K (Sellers paying closing)
10% Down Payment -- $14.5K (4.5% 5-year fixed, 15-year amortization)
Rent -- $1650/mo. (both units currently rented by very nice people who live very close to work and really like the place)
Mortgage -- ($991/mo.)
5% Vacancy -- ($80/mo.)
Actual Property Taxes -- ($240/mo.)
Actual Landlord Insurance -- ($60/mo.)
4% Property Management -- ($66/mo.) (Actual %, friend is a realtor/manager, gives me a great rate on properties I buy through him if they're in a good area)
10% Maintenance/Repairs -- ($165/mo.)
NOI -- $12.4K
Cash Flow -- ~$40/mo.
COC -- 3.5%
Cap Rate -- 8.6%
Total ROI (Including Principal Paydown) -- 45% in first year (goes up in subsequent years with additional principal pay down)
I think I did well for a first buy. Agree/disagree? Only thing I think I may not be adequately budgeting for is maintenance/repairs? Would love some feedback from some experienced investors! Thank you!
I'd also be curious to hear opinions on this scenario. I've actually passed up a lot of similar situations and as a result have yet to make my first purchase. I suspect it has to do with what you're looking to achieve...
What made you pass?
For me, it's a "totality of circumstances" My main interest is cash flow (versus appreciation). Looking at 3-4 family buildings with cash flow of +/-$-$100 per door "on paper" was a bit scary, considering the age and condition of the buildings in question (and considering that I intend to self manage, so my time is worth something as well, and not accounted for as property management).
Many of the buildings I've seen in this area are +/- 100 years old and would require some capital expenditure up front (structure,roof,windows,etc). Anything "unforeseen" on top of that would have quickly destroyed my 10% repairs and cash flow for the year. The area I'm looking in is somewhat economically depressed - on it's way up, but slowly, so lots of slow-pay tenants on top of it.
If I was looking at buildings in a better neighborhood, and not looking to self-manage, it would be a different story...
This is in a nice suburb. No major capital expenditures likely in the next 5 years. Roof has 15 years left on it, and only one layer. Based on 100 properties that I've looked at, very little in the area comes close to this one as far as the structure quality, location, and analysis goes. Initially, I was planning on taking lesser return numbers to be in nicer areas with better tenants. Give myself a chance to get my feet wet and get some experience behind me before going for more lucrative deals. I FEEL like I got a way better deal than I was expecting, but having no experience, I'd like some confirmation from some more experienced guys.
I'm not experienced at all. But I say well done sir. No analysis paralysis there.
@Andrew Banker ... If you have available Thursday October 15th between 6pm-8pm you should come join us at Zocolo for our un-official BP meetup. We would love to meet you and hear about your deals. I'll follow up with you when we get closer to our meetup date.
Are the units local or out of town?
@Michael Faulk , thanks for reminding me about the meeting. The three duplexes that I mentioned are in the Milwaukee area. I can't find anything locally where the numbers look anywhere near as good. I'd love to discuss my evaluation metrics to see what you think about them. I'll do my best to make the meeting!
Based on what you see in that first post -- any thoughts?
@Tony Velez , thanks for the thumbs up. I went through my calculations again and again. Felt like I've left myself room that if they don't end up being as great as I expect, that I can't get hurt too badly on them.
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