Duplex Deal - good?

Question

I'm pretty sure this is a good deal - my offer was accepted, but I still have an inspection that needs to pass.

Duplex (side by side, 1,600 sq ft each side)
Purchase Price:  $19,000
20% down - $3,800
Mortgage on $15,200 @ 7% (commercial loan)  $117.84
Taxes $2,300

Rents $1,000 ($500 a side)

Now, this alone is an unbelievable deal - but it needs work.  New roof, paint inside and out, and new kitchens.

The question is, how much can I put into it to still make it a good deal?

My preliminary estimates for work are $22,000 for a total project price of 22k + 19k = $41,000
Mortgage on $37,200 at 7% will be:  $288.41

50% rule states I have $500 - $288.41 = $211.59 profit

Cash on cash return for this is 66% right? ($2,532 profit a year / $3800 cash out of pocket...)

Good deal?

Tom C · Answer

Steve,

Your total cost is estimated to be $41K, not $35K. This is the number you use to decide if it's a good deal. Even at $41K I would do the deal, if you are sure about those rents and the area. I can pick up duplexs at that price all day in my area, but the area sucks and rents are closer to $300 to $350 a month.

Steven Grabowski · Answer

$500 is the higher end of the market in this town.  However, I think as a college student rental, I can rent it 'per room' and get an overall higher rate.  My goal is to have the project done under $35k total.

I guess, if I can get it done under $35k total, and my rents are $1000 a month total - is it a good deal?

Tom Sylvester · Answer

Numbers look good.  Can rents be raised once the work is done?  Will market support the higher rent for a nicer property?

Jon Holdman · Answer

The all in cost and the rents look good. You'll have more out of pocket than that, though. Closing costs, inspections, prepaids, etc. But looks like a good deal.

Can you really manage to get that financing?

Steven Grabowski · Answer

Yes, I need to come up with 20% down of the purchase price, then the project needs to appraise at least at 90% of finished cost (which I am sure it will).  My closing costs and prepaids will be financed as well (I just did this on another deal about 3 months ago - same bank).

My only other 'out of pocket' will be the inspection and appraisal ($300 each approximately).

If the house appraises at $60k I can get $52k in financing - I don't want to though, the numbers won't be good enough for me.  I want to have it finished and all in at $35k leaving me plenty of equity and cashflow.