Duplex Dilemma in Alberta!
Hey everyone! Last week I called about a duplex for sale for the first time to practice talking to sellers. Turns out this sale is totally doable and now I'm wondering if I'm romanticizing the idea of jumping into rental property #2 or if it is actually a good deal. Here's the info I have on it.
Asking: $575,000
Down: $10,000 via seller financing
Location: Lethbridge, Alberta excellent as far as neighborhoods (close to college, downtown and hospital)
Each unit has: 1100 sqft, 4 bed 2 bath, single car garage. Has potential to possibly be turned into a 4 suite building.
Property Taxes: $5,100/yr
Not sure what kind of interest he's looking for but we did some number crunching and at a 3% rate we were able to figure that with $2000 payments to seller we could be making between $500-$600 not including minor repairs (obviously that depends on the actual condition of the house but these numbers are just a ballpark).
Currently renting for $1,500 per suite with tenant paying utilities
Seller built the property here 40 years ago and has no loan on it. He is also in no rush to sell it but it sounds as if he is interested in working with me. The building is solid with no work needing to be done. Very low maintenance property. Still unsure about the vacancy rates but he says it has been very consistent and he currently has both units rented out with 1 yr leases (both running out end of this year) to great tenants. I know I shouldn't take his word for it so there is definitely some verification that I'm going to be doing.
Exit Strategy: If we could manage the property payments for 5 years at these numbers and then sell it at the end of the 5 years we would be able to clear approx $118,000 (minus realtor costs, lawyers etc). I'm not sure if those numbers are good enough to be a safe backup plan but that's what we were able to come up with.
As far as comparable rentals go, there is another slightly better property for sale for $225,000 with 3 units right across from the hospital (not far from the other duplex location). 2 legal suites and one illegal suite with potential to make another illegal suite. It looks slightly newer but it is being sold through a realtor and the seller is not interested in seller financing.
The duplex is not being sold through a realtor which doesn't really bother me since it is how I bought my first property (which is going great so far) but I'd like some input. Bank financing is not an option for us since we only purchased our first rental last May. Initially our goal this year was to eliminate the last of our liability debts, establish an income (to count towards our bank credit) and save up for another down. Then I called about this duplex and all the signs seem to be pointing this way. I am hoping to negotiate a bit on the price but I'm unsure of what I could offer him that he would actually go for that would also help me out. The seller seemed very interested in sitting down and answering any of my questions and establishing a relationship which to me gives him some credibility and his years of experience would be an invaluable asset for me. My gut tells me that this may be a great opportunity and this is all the info we came up with so feel free to let me know if there's anything that raises red flags for you!