Thoughts on this Deal?

Question

Asking is $79,500 for 3 Duplexes all with long term tenants that want apparently want to stay.

Listing says Gross income is $21,600 with Expenses of $6792.

Assuming I did this correctly, here's how that works out via the BB calculator:

Monthly Income: $1800

Monthly Expenses: $1464.59 (this includes the MLS stated $6792 above plus vacancy, repairs, CapEx, Prop Management, insurance (of course, I'm not sure if they were including insurance in the stated amount for expenses or not)).

With that; monthly cashflow comes to $335.41. With 20% down, that's 14.43% cash on cash ROI.

Now, of course, this looks to be in a C- to D area...I think. Not even sure how much renovation would increase the value of these properties...I don't think higher paying tenants would move to this area.

Also, not sure how I feel about having this type of area be my first deal....but the numbers seem to work out pretty good.

Thoughts?

Chris

Chris Thomas · Answer

Thank you all for the great advice!! It really helps.  A little background and to answer some of your questions:

Goals @Bram Spiero

Short Term -

1. Purchase first rental property (Probably out of state or a few hours away - I live in SF where I can't afford properties). I'm thinking Alabama...I'm from there so I have some boots on the ground and the tax right off on trips back would be nice.

Mid-Term -

1. Build Portfolio to the point that I can afford real estate closer to where I live now so I can be more hands on.

2. Build Portfolio to match current income with passive income.

Long-Term - (or as quick as I can make it happen)

1. Continue building portfolio to quit corporate live and focus on real estate.

@John Patton Yup! Oporto - Madrid.  Not the worst area in the world from what I remember but it has been 16 years since I've spent more than a week or two at a time in Bama.

John Thedford · Answer

I would make sure and verify the numbers provided. I would also want to know how long the PM company has been in charge. Some sellers will try and make things look better than reality by playing with numbers, etc. Also, are you local to the property if you had to take over and are you prepared for that?

Ask the seller or their agent to provide the part of their tax return for the last 2 years that shows the P&L on this property. Don't believe everything that is presented...you must make the other party prove certain representations. Last but not least consider the condition of the property, location, and your exit strategy. Buying is just part of the equation.

From my own perspective, properties at that price level can be a real challenge in several ways. I usually buy nicer units, pay more money, and have little tenant turnover. We each have our own preference though..but don't be in such a hurry that you purchase something and six months later regret it.

Anton Ivanov · Answer

@Chris Thomas

It sounds like you're doing a pretty good job with estimating expenses. Two things I'd like to point out is make sure you're covering for utilities if the landlord pays any and landscaping, as often landlords are responsible for landscaping for multi-family properties.

As far as what the others pointed out about the neighborhood, it does come down to personal preference, but you you also need to be accounting for the lower tenant quality, meaning higher vacancy and maintenance. If these are Section 8 tenants, research how long it takes to get a Section 8 tenant approved. I own 3 houses in Birmingham, AL, where it often takes 4-6 weeks to place a tenant just because the Section 8 administration is so slow with their processing.

John Patton · Answer

Boys, you have at it. That area is the wild wild west. Ride um cowboy ...........................................JP

Shawn Ackerman · Answer

@Chris Thomas I'd buy it! However only under a few conditions.  1. the numbers actually checked out. 2. If the property is close in proximity to where I live.  A deal like this will probably need alot of time devoted to it to make sure it's operating as it should.  If your not close, but trust and vetted the PM I'd say go for it.  Double down on the due diligence!

John Patton · Answer

Chris, run don't walk  from this area. The live bands at the Oporto Armory have long gone as well in this area. LOL. Next time you are looking at something in Birmingham, I would be glad to do a drive by.

Good luck. JP

John Patton · Answer

Just studied the picture. I bet these duplexes are on 77th street south or Oporto - Madrid Blvd. Just guessing with 4 lane busy highway. Just a thought... JP.

John Patton · Answer

What's the address? Neighborhood may be ok or maybe its in a crime area which is were you don't want to be. I have a home in a great B- area but is within 200 yards of bad apartment complex with a creek in between but bad folks still walk the street. You need to have some one ride the area between 11 am and 1 pm and you will have a better idea. I look for how people keep their yards and their cars. One block can make a huge difference. Just my thoughts. Good luck JP

Thoughts on this Deal?

Most Popular Reply