Sounds like a good deal, right?

Question

I'm looking at the following deal for a 2-family in Buffalo, NY.  There are minor cosmetic repairs needed, but that's it.  Both units are filled with tenants on leases.  Opinions?  Here's the deal:

Cost to purchase: 30K
Gross rent: $10,080 per year (840 per month)
Taxes (including sewer): $1300 per year
Insurance: $425 per year
Garbage collection: $170 per year
Vacancy allowance: $1,115 per year (based on 11.7% vacancy rate for this zip according to Sperling's)

Monthly rent comes out to 2.8% of purchase price.
Based on 50% rule I figure I'll clear about $135 per month, giving me close to $200 per month in reserves, and still over 20% cap rate if I put down 20% and finance 80%.

I should do this one, right?

Dave Versch · Answer

None of the houses on the street have any broken or boarded up windows or doors, so I wouldn't consider it a war zone.  Although, it's not quite Beverly Hills... :D

Rich Schroeder · Answer

my suggestion is to see it right away!  I have lost out on deals (even though I offered cash) by waiting even one day. 
            Thanks 
            Rich

Avinand Singh · Answer

According to the Census, the population of Buffalo is decreasing, so I would be careful. Check census.gov.

Jon Klaus · Answer

"Monthly rent comes out to 2.8% of purchase price."

This would make it a deal in my area, especially for a duplex.  I would stay out of a war zone, though.

Michael R. · Answer

I would check out the property and area first. There are lots of war zones in Buffalo and I would not buy without taking a first hand look. I know someone who purchased 2 properties and from my understanding the ecomomy is not all that great there.
Good Luck,
Mike

Michael Rossi · Answer

Dave,
            
            Here's the way I see this deal:
            
            Gross Rents:  $840
            Operating Expenses:  $420
            NOI:  $420
            
            Mortgage ($30K, 30yr, 7%, NOO): $200
            
            Cash flow:  $220 or $110 per unit per month
            
            The numbers look good!  Whether you should buy it or not depends on your due diligence.  Is this in a war zone?  Is there demand for this unit?  What are the terms of the current leases and who are the lessee's?  What is the local situation in Buffalo?  Is a major employer getting ready to go out of business or are jobs coming in?  Do you know the area and have you seen the property?
            
            Good Luck,
            
            Mike