My First Deal - $60k Duplex - What do you think?

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My First Deal - $60k Duplex - What do you think?

Josh Robbins
Rochester, NY · Member since 2015 · 51 posts · 12 votes

Hi All,

9 months ago i decided i wanted to invest in real estate and i'm finally taking action and got my first investment under contract (home inspection next week). I've run the numbers but would love to hear what people think. I actually plan on paying with this out of my HELOC from my primary, doing some cosmetic work to it, and then in 6 months refinancing at the appraised value. i believe an appraisal with under $2k of work should come in around $85k. Details below but let me know if you would like any other information.

Purchase Price: $60,000

2 Family, each unit 3/1 , 2024 sq ft.

Current Rents: $775 and $725 - both units occupied with one year leases

Location South Central Troy, NY

Taxes: $4,687  (sadly this is not a typo - property is assessed at $103,000 which i will contest, hopefully bringing this down)

Insurance: $800

Water/Sewer $918

Garbage/Recycling: $232

Other utilities are paid by tenants

I have no actuals for maintenance/repairs etc but the roof is old and will need to be replaced in the next 5 years.  Electrical was updated 2 years ago.  Building was built in 1910.

I appreciate any feedback

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Account Closed
Uniontown, OH · Member since 2016 · 29 posts · 13 votes
10y
Am I the only one who thinks this $75/mo of positive cash flow after you account for vacancy, pm, capx, etc on a $60,000 duplex is a pretty weak investment?
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  • George C. Harrell
    Wholesaler · Milwaukee, WI · Member since 2016 · 8 posts · 0 votes
    10y

    There are a lot of consideration to take into account. Neighborhood is a key factor. Some questions I ask myself; Are these units already occupied? Is this property located in a neighborhood where you can find solid tenants who are willing to stay put? What type of tenant can you attract to this location?  How much do you anticipate this house being worth in five (5) yrs? Will you be able to sell this property easily in the future? How Much do you anticipate the roof costing?  

    These are just a few important question to ask yourself. Because the neighborhood will attract the tenant, and that tenant is who you must deal with. Secondly, you want tenants to stay, high turnover means low profits...  Also, Its clear how you plan on entering this relationship, but you must also be certain that your exit is just as easy...

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  • Mike Wood
    Developer · New Orleans, LA · Member since 2015 · 1k+ posts · 898 votes
    10y

    @Josh Robbins Looks like the property should cashflow, just the costs listed plus mortgage payment would be about $780/month. This leave you $720 to cover property management(~$150), maintenance (~$150), Capex (~150), Vacany (~120), and lawncare (~$75) and still have $75 positive cash flow.

    Based on the purchase price, I would like this deal if its in a good area.  My concern without knowing much about the property is the price and rents (for 3/1's) are on the low side, so it might be in a C or D area. Those areas are tough to find good tenants.  

    Is this property fair market rent or Section 8?

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  • Jay Dewberry
    Covington, GA · Member since 2014 · 295 posts · 93 votes
    10y

    I think my concern is going to be that roof and any other major repairs that will need to come in the not-too-distant future. If it's in the budget, why not fix everything to minimize not only future problems with tenant, but liability if something terrible happens as a result of roof damage with a tenant. But who knows, as I'm not a general contractor/home inspector. I suppose you could do it without a new roof, but IMO I would put in a high CapEx budget...especially with the age of the property. Also, make sure you CAN refinance after 6 months. The banks may require a different time frame. Just thoughts.

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  • Josh Robbins
    OP
    Rochester, NY · Member since 2015 · 51 posts · 12 votes
    10y

    Thank you all for the responses.

    @Mike Wood @George C. Harrell @Jay Dewberry this deal is in a B-/C+ area.  in my opinion, it's in between the c area and the A area but hasn't gotten enough of the spill over from the A area yet.  Tenants in this area are decent.  The rents are low right now because i would describe the building as "old".  It's a bit rundown but the bones are good (at least i believe they are, will know more after the home inspection).  These are not section 8.  i'm confident with some TLC i can get $100 more per unit in a couple years. 

    my plan is to take no cash flow in the beginning to get the property up to a level that can get fair market rents, that includes replacing the roof, and doing some updates to the kitchens like replacing the appliances and some cabinet refacing, updating the common areas and potentially repointing the facade.

    i've already spoken with a few banks that will do the cash-out refi in 6 months so i'm confident that i can get that done.  My strategy is long term buy and hold for the property however there is potential for solid appreciation as the city is going through a rejuvenation and is focused on revitalizing the city.  I anticipate this property being worth over $100k in 5 years but i'm not banking on it.

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  • Mike Wood
    Developer · New Orleans, LA · Member since 2015 · 1k+ posts · 898 votes
    10y

    @Josh Robbins Given the area and that you have market rate tenants, I would be a fan of this deal.  If there was a deal like this in my area, I would be happy to scope it up (so would alot of others).

    Keep in mind that any cash our refi is going to be at 70% LTV, given its a multifamily house. In order to get back your initial purchase price of $60k, it would need to appraise for $85.7k or more.

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  • Josh Robbins
    OP
    Rochester, NY · Member since 2015 · 51 posts · 12 votes
    10y

    Thanks @Mike Wood, appreciate the support.  Quite frankly, with this being my first deal, I'm just looking to learn. Hopefully the numbers work too. 

    I've actually found a bank, who does entirely portfolio lending, that will cash out refi at 75%LTV with a rate increase of 1/8%. But they are an exception as all others I've talked too are 70%.

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  • Brian Andrews
    Investor · Clinton, TN · Member since 2015 · 16 posts · 4 votes
    10y
    So if that property was in my area, I would do it. That being said it is not, so I don't know if it is a good deal in your area. Have you run the numbers on several other duplex opportunities? How do they look? My point is use them as a comparison. Don't fall in love with the unit (ask me how I know that's a bad plan). Be willing to walk away, but I think cautiously keep moving forward based on what you said.
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  • Eddie T.
    Rental Property Investor · NY · Member since 2013 · 844 posts · 350 votes
    10y

    @Josh Robbins What are the numbers in your area that have you looking out of state?

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  • Josh Robbins
    OP
    Rochester, NY · Member since 2015 · 51 posts · 12 votes
    10y

    hey @Brian Andrews, appreciate the advice and yes, I have run it against many other duplexes and like the numbers for the area.  If this home inspection brings up anything major I will have no problem walking away. No falling in love here. 

    @Eddie T., I live just outside Boston and in my town a duplex doesn't go for less than $400k and probably doesn't break $3600 total in rents, on the low end.  I've been priced out so I haven't spent too much time scoping it out. But from my perspective there's not many deals in these parts unless you want to speculate, which I don't. My wife's family is from the Albany region so I've been leveraging them for the out of state investing. 

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  • Eddie T.
    Rental Property Investor · NY · Member since 2013 · 844 posts · 350 votes
    10y

    @Josh Robbins as long as you have someone local who you can trust. I know boston is expensive but I am sure their are smaller towns 1-2 hours away that have lower priced housing.

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  • Kevin Olson
    Danvers, MA · Member since 2012 · 40 posts · 9 votes
    10y

    @Josh Robbins sounds very interesting from a cash flow perspective. Obviously being from North of Boston these are #'s that are hard to find locally. I'd be interested to hear more about the market and the condition of the proeprty. Unforeseen Expenses can kill cash flow, but other than that looks great. Good luck!

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  • Josh Robbins
    OP
    Rochester, NY · Member since 2015 · 51 posts · 12 votes
    10y

    yea @Eddie T., there are cities west of Boston within 2 hours in those price ranges, of course there's a reason they're that much cheaper. Plus I'm going out to this area 5-6 times a year anyways to visit family and I'm partnering with them to be my boots on the ground. Better than having to get myself out 2 hours to western MA every time I want to check something out. 

    @Kevin Olson thanks so much. Happy to talk both Troy and local market. I'm a north shore guy myself and inside 495 we don't get anything remotely close to the prices in seeing. Maybe Lawerence is close but you'd really have to know that market. 

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  • Lior RozhanskyBusiness Member
    Real Estate Agent · Boston, MA · Member since 2016 · 106 posts · 69 votes
    10y

    @Josh Robbins From a pure numbers perspective it looks good. Though I havent bought my first one (so take with grain of salt), one thing I am really focusing on, especially with an older house, is understanding how to account for lifespan of the capex. So if you know you will have to replace that roof in 5 years, during your due diligence process (AKA now, when its under contract) see if you can estimate the cost and amortize that into your monthly expenses. The worst thing that can happen to us newbies is one bad hit from an un-calculated/un-expected capex expense that destroys a year or more of cashflow. Just my two cents. 

    Lior

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  • Josh Robbins
    OP
    Rochester, NY · Member since 2015 · 51 posts · 12 votes
    10y

    Thank @Lior Rozhansky, i'm actually assuming i'll be doing the roof pretty early on and building that number into the cash out refi and financing. However i agree, with these older homes you need to make sure the CAPEX is accounted for, especially the lower priced ones as it will wipe out cashflow. that being said, i fully expect in the first few years to have no cash flow on this as i reinvest it back into the building, increasing its values and its rent potential. That and since it's my first property, i'm looking to learn more than anything. Where have you been looking? Newton is about as expensive an area as you can get outside of the city.

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  • Wes Brand
    Investor · San Francisco, CA · Member since 2016 · 314 posts · 153 votes
    10y

    I must be missing something...you're not looking for cashflow and you don't want to speculate. What are you looking for then? (And don't say you're looking for cashflow after a few years, that's speculation!) 

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  • Josh Robbins
    OP
    Rochester, NY · Member since 2015 · 51 posts · 12 votes
    10y

    sorry @Wes Brand, if I'm not being very clear. I am 100% looking for cash flow. And I think this will cash flow nicely. Rather than doing improvements up front I plan on taking some of that cash flow (hopefully not all) and putting it back into the building.  What I was getting at is that if it does not cash flow because of this, I'll feel ok about it since it's my first deal and I'll learn a ton from it. 

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  • Wes Brand
    Investor · San Francisco, CA · Member since 2016 · 314 posts · 153 votes
    10y

    I see. Troy is kind of risky -- population has been in decline and the jobs have been moving out. When I lived there I wouldn't say there were any A class areas, everything was B- or lower, but maybe your place is outside of Troy itself. How confident are you that you'll be able to continue getting the 1500/mo combined rent? You have a pretty high expense ratio with your taxes, so if you can't get those lowered you're only looking at an ~8% return on an all cash deal. In non-NYC NY 7-8% returns are typically found in B+/A class areas. There's also a risk that your private bank does not assess at the numbers you hope, and they only let you cash out 75% of the 60k you paid.

    How close to the college are you?

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  • Josh Robbins
    OP
    Rochester, NY · Member since 2015 · 51 posts · 12 votes
    10y

    @Wes Brand when did you live in Troy?  I'd say over the last few years it's been going through a small rejuvenation.  The largest farmers market in the area has been bringing many more people to Troy and has really built up the downtown.   1 bedrooms going for over $1000/mo now in the area.  With a focus on bringing nanotechnology to the Capital Region they're looking to turn around the decline of the population. When my 20-something sister-in-law told me she was looking to move to Troy a couple years ago, i knew there was something to it.  

    My place is 5-6 blocks from Russel Sage and .5mi from RPI and Monument square.  With the location and the number of bedrooms i'm confident i can keep the 1500/mo and actually think I can get it up to 1700/mo with some relatively minor upgrades, which is more in line with where 3 Bedrooms rent at.  In May i'll be able to contest the tax assessment which could bring the taxes down significantly.  But yes, i'm sitting at around a 60% expense ratio which i don't love, if i can't bring that down.  Even at 60% i think it cash flows though.  

    The banks I've spoken to all said they'd go on independent appraisers value after 6 months.  Prior to 6 months its on the purchase price.

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  • Lior RozhanskyBusiness Member
    Real Estate Agent · Boston, MA · Member since 2016 · 106 posts · 69 votes
    10y

    @Josh Robbins Makes sense. As long as you have some reserves in the bank in case something brakes the next day, and you think at as-is condition in that market you will be positive cash flowing, it seems sensible. 

    Im definitely not thinking of investing in Newton. I've been studying the Quincy market for some time now. The city has numerous redevelopment construction projects going on, and it seems like they finally have a sensible execution plan. I think finding a deal in a "cheaper" area though is just as hard to find a good deal as in the more expensive areas (Boston). At the end of the day, some of these multi families Im looking at have good returns. Im just waiting to pull the trigger until I see a house that meets my exact criteria (3-4 family, under 650K,  4-5% cap, and some form of expandability, whether it be some minor cosmetic updates or management).

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  • Wes Brand
    Investor · San Francisco, CA · Member since 2016 · 314 posts · 153 votes
    10y

    I lived out there 11 or 12 years ago. It was pretty run down at the time with no real signs of improving. Entirely possible it's changed since then, though. Appraisals for cash out refi typically come in low. If comps are 85k I wouldn't be surprised to hear an appraisal of 75k or less. Especially if you're relying on 'new roof' as the improvement. That doesn't typically add even close to the cost in value.

    You want to be concerned with: how likely are the rents to go up/down, what's my ROI if the rents stay the same/go up/drop by 20%. How likely is it they'll drop/stay the same/go up over the next 10 years? (10 is a random number ;) You then want to ask if that ROI makes sense for you. If I'm looking for cashflow I won't go under 10% on an all cash purchase, but your goals might be different. Do not make the mistake of assuming it's decent just because it cash flows X/month. You need to look at what you have invested compared to the return.

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  • Josh Robbins
    OP
    Rochester, NY · Member since 2015 · 51 posts · 12 votes
    10y

    @Lior Rozhansky From what i know of Quincy it's a great rental market although i haven't studied it.  But i agree, there is so much competition in the Boston area that the cheaper areas seem to get a lot of attention.  they're also areas where the retail buyers jack up the prices.  good luck with finding something, patience is a virtue.

    @Wes Brand i really appreciate the advice. Those are great points and to be honest, i should be paying attention more to the ROI. Thanks. And just to follow up, new roof is not the only improvement i was planning on making to get the value up. The building needs some reviving and i recognize that "roof" is not going to get my appraised value to increase.

    thanks for all the feedback!

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  • Account Closed
    Uniontown, OH · Member since 2016 · 29 posts · 13 votes
    10y
    Am I the only one who thinks this $75/mo of positive cash flow after you account for vacancy, pm, capx, etc on a $60,000 duplex is a pretty weak investment?
    1Reply
  • Mike HurneyPro Member
    Real Estate Investor · Boston, MA · Member since 2009 · 2k+ posts · 542 votes
    10y

    @Josh Robbins This may be one of those areas, like the Mafia, Where you can get in but you'll never get out.

    I spoke to a REIA in Niagara Falls a couple of years ago and when I used the $100k example of a property, it almost cleared the room;-)

    Just because of those low numbers (compared to our local values) I think it looks good but I'd do more analysis on it. A bunch of people in our REIA invested in "Upstate"? NY and they're still stuck with properties that languish. One investor spends almost a week per month there and he's able to squeeze every nickle out of his many properties up there doing very well. You like the area to spend time there?

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  • Sebastian Naczas
    Engineer · Albany, NY · Member since 2014 · 42 posts · 18 votes
    10y

    My 5 cents:

    - I looked at Troy and it's choppy ... there is a good block then a bad block then a good block ... South Troy is below park ... I went there after dark sets in and decided that I wasn't interested in living there myself, my wife wouldn't feels safe there ... check the crime map on Trulia and zoom in, if it's red/orange - don't buy ...

    - Yes there is a lot of nanotech development in the area ... but I feel you need to be walking distance to the projects of interest ...

    - If you are in it for the cash flow then go for it ...

    I decided to invest in Albany next to hospitals, medical students are great!  And also good school districts ...

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  • Josh Robbins
    OP
    Rochester, NY · Member since 2015 · 51 posts · 12 votes
    10y

    Hey @Account Closed i agree, the area is extremely choppy.  i would not invest in south troy (or north Troy for that matter) and agree with your comments on nanotech, i just hope it will support the area.  i am in it for the cash flow though but like the downtown troy area for it's potential for appreciation (although not counting on it).  I think the albany med school area is a good location too although i don't think i've ever heard anyone say the albany area has good school districts, but maybe i just need to look into it more.  i'll connect with you as i'd love to hear your thoughts on the albany area.

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