I am a newbie to the real estate world (although I have probably spent 90% of the last month researching real estate investing, mainly on bigger pockets)
I am very interested in buying a Duplex and I think I found one that meets all the criteria necessary to have positive cash flow, but I really would like to get some advice from someone that has done this before.
Here are the numbers on it.
Asking $270,000 (shooting to get it for 250-260k) Numbers below are for $265,000
each unit is 4 bedrooms, 3 bathrooms, and 2,100 square feet.
Current rent is $1,150 for each unit (however it has not been raised since 2011)
I would say the area is a C class area
Comps in the area are much closer to the $1,300-$1,450 range for 4/3
My costs would be:
Mortgage (PITI) $1,750
Maintenance/Vacancy 20% of rent, so around $550
I would be the landlord, so that eliminates any management fee.
Tenants currently pay for all utilities
So the total comes out to $2,300 for my monthly costs
I know I can rent the duplex for at least $2,600-2,700 (some comps as high as $3,000 but I am trying to be conservative)
That leaves me with at least $300 cash flow/ month, and that would be on the low end of my predictions.
I just want to make sure there aren't any huge expenses I am failing to see that will kill my cash flow, and if you seasoned investors think it is a good buy?
I talked to a contractor, and for around 15k I could turn each basement into its own separate unit, making it a fourplex. Basement units could rent for $500-600 and upstairs would be around $950-1100. Like I said, I am new to the game so I don't know how I feel about that route, but it would increase my cashflow by at least $300/month while only increasing my mortgage by about $150.
Anyway just let me know what you think!
Do it. You can sit and analyze deals all day but you don't really learn until you get one and actual go through the process.
How much would you put down? what are you assuming for the mortgage and rate?
Also the basement idea is a must. I had a duplex that had a detached garage, I converted it into a studio and am now renting it for $650. Greatest thing I ever did. Its almost like getting another property for $15k. Not sure if you mean $15k for both or $15k for each, if the latter then you will make about a 40% return on those basements if $15k for both then those will pay for themselves in less than 2 years.
Quickly glancing at that the numbers look pretty poor. Using 50% rule and doing the basement modifications you still end up at about $1500 left over after expenses so with your mortgage it's doubtful you will cash flow at all
Honestly dude, this probably won't be profitable. I know you want to jump in but there's not much margin for expenses or error here. and you have to account for property management whether you do manage it or not yourself, that's creative accounting to make a deal look better than it is, and that's not the right way to do it. Just keep looking and find a better deal, find a motivated seller and buy one for 30% off. That's just really not worth the effort, especially for a C class area.
Your expensive percentage seems pretty low. Look at the current owners history(request his schedule E from his federal tax return for the last 3 or 4 years that will show real expenses and income). Also remember with only 2 units if one is vacant for only 1 month that is about 4.2% vacancy. As far as the additional two units for only $15,000 that sounds very good, but first check the zoning in the city to find out if you are allowed 4 units on that property.
Another factor to consider is that you stated it in in a C area. That is ok as long as the area is improving and not headed the other direction whereas the rents will start to go down. Your property value is based upon the income it generates, unless some big redevelopments are going on where the developer is purchasing based on size of your land and needs your property.
Thanks for all the great input!
I was definitely on the fence about this one after running my numbers, I will contact the owner and see what the actual expenses were on the property, and I'll make sure the city allows 4 units on the property.
The overall impression I am getting is that the numbers on this property are too risky at 265k.
I doubt I would get this offer accepted, but any thoughts on if I were able to get it for 240k?
that would have my mortgage payments close to $1,500.
I know that the tax value on this property is 230k
My realtor told me that this seller is motivated to sell, so I figure it is worth a shot to get it as low as I can......without pissing the seller off of course.
@Thomas Brady - Sorry Tom this is not a good deal. When we take risks and deal with all the BS that comes with managing properties we want to make MONEY. I would hate to see you jump into your first deal and have it take money from you each month. We invest in buy and hold for cash flow and this property will most likely not have any. I would need more info regarding property age/condition etc. to give you accurate cash flow analysis. Is there a better cash flow area in your back yard?
Where is this building located? Do not finish off the basement you will regret it. Keeping water out is very difficult and expensive. The real cost to do a basement apartment is more like $30k putting in French drain system, sump pumps, etc
I wouldn't buy something this skinny in a C area unless I knew it was going to undergo some gentrification next week.
No harm in offering what works, though. Make sure your offer isn't some nice round number that looks like what it is, PFA. Brokers are famous for that.
If you are cashing out this motivated seller, my offer on something like this might be like $221,432. "Highest and best. That's what the numbers say." Stick to your guns and see what happens. An 'opportunity' missed is much better than overpaying for a bunch of work and indigestion.
Good luck @Thomas Brady and please keep us posted!
Wow, I can't believe how much helpful information I have received. Thanks for the input!
The area I am buying in is definitely on the rise, and isn't far from a lot of new retail development.
I like the Idea of throwing out a number that works for my cash flow, and they can either take it or leave it.
I'll update the post on what I end up doing, and thanks again to everyone.
"without pissing the seller off of course"
Don't worry about that. Take that out of the equation entirely.
Focus on the numbers and the profitability of the project. Dig deep into the financials and the details.
If you do buy it ...the seller will be long gone from your mind very quickly after closing.
What about capital expenses? Are you doing landscaping or someone else? How do all the major items look(roof, hvac, etc.) How's the crime rate since it is in a C class area.
thanks Ronan, I will definitely take that into consideration. The numbers are more important than not pissing the seller off.
The house is relatively new (2002) so I don't foresee the cap ex being too high for the next few years. The area is C.....probably C+ to be honest, and is definitely not in a declining area.