I'd like to get some feedback on this deal I'm considering on a 2 bed/1.5 bath duplex in Saint Louis, MO. I copied the particulars from the BP rental calc (I hope that's okay) and my question now is how good is this deal? I'm sure you may want more info, so please ask away. I would say the neighborhood is a C to B, with the school district being the major drawback (4/10). Only one side is currently rented.
Concerns: No storage, at all. But I think this could be nice for a single person or couple's first place together, and maybe would work well as a furnished home in the future.
All of the outlets are 2-pronged, so no grounds, except the required GFIs in the bathroom and laundry. Will this be an issue in the future?
Purchase Price: $102,500.00
Purchase Closing Costs: $1,500.00
Estimated Repairs: $4,000.00 (not much work needed and I doubled my estimate)
Total Project Cost: $108,000.00
After Repair Value: $103,000.00
Down Payment: $25,625.00
Loan Amount: $76,875.00
Loan Interest Rate: 5.000%
Monthly P&I: $412.68
Total Cash Needed By Borrower: $31,125.00
Monthly Income: $1,380.00
Monthly Expenses: $1,275.93
Monthly Cashflow: $104.07
Pro Forma Cap Rate: 6.02%
Total operating expenses: $863.25
Mortgage expenses: $412.68
Vacancy: $138.00 (10%)
Repairs: $138.00 (10%)
CapEx: $138.00 (10%)
Management: $138.00 (10%)
Property Taxes: $173.25
Income-Expense Ratio (2% Rule): 1.28%
Total Initial Equity: $26,125.00
Gross Rent Multiplier: 6.19
Debt Coverage Ratio: 1.25
Its an ok deal not amazing but pretty good. You could probably get a 4fam in the same neighborhood for just a little more that would return a better rate of return. I glad to see that you put something in for capX a lot of people forget that one. Also you management fee is properly on the low side unless your going to do that yourself.
Where is this located? $100k for a duplex could be dirt cheap or way over priced depending on location.
Nice job breaking everything down. Don't know if I would pay the purchase price you listed considering the ARV is $5,000 below your total project costs. You will need to have an electrician check the outlets to make sure it's up to code. That will add to your rehab costs. How accurate is your ARV comps? When was the property built? Are there other duplexes nearby? Is monthly income based on both sides being occupied? Is monthly cash flow for both units or per unit? If both, then the margins are too thin for me.
No. Terrible deal. You only have $100/mth cash flow. That is awful. On a duplex you should be getting at least $200/side and even that is not enough. Ideally you'd want one side to pay your note and expenses in case the other side was vacant. Ideally you'd also want at least 10% cap. Most investors I sell to won't go less than 12%, many not less than 15%.
You should only be paying about $60-70k for this deal. Unless your plan in the future was to convert it to a SFH and convert it and sell it for around $250k.
My advice is to walk away. There are many better deals out there.
I appreciate all the feedback, sorry I didn't get back to your questions sooner.
@John Leavelle $103k is the comps number the realtor gave us; the street and area has a lot of duplexes. Just going by sight, I would rate the curb appeal of the place pretty highly in the area. Built in 1965. The rent is $690 per side, so monthly cash flow above is total for both units. Something I didn't mention is that the roof is 15 years old but the deal above includes a new roof.
@John Skaggs I appreciate your feedback as well. I was hoping to get $100/side but I'm pleased to hear that there should be better deals out there. I will admit that I was leaning toward your opinion already. I will say that I was pretty conservative on expenses, like $70/mo for the yard won't be year-round. The CapEx may be lower with the new roof (something I didn't mention in the OP), I plan to manage this one to start so management fees won't be there (but still wanted to build that in), and I wasn't sure about vacancy so I used 10%.
I know this isn't a "great" deal, but for my first one it felt okay to get something that was practically turnkey so I could learn about some minor repair and land-lording. But again, I appreciate all the advice and my mind is not made up.
It is not a good deal. It's not even an OK deal. It's one of the worst deals I've seen in a while. You don't have any equity either because as soon as you pay $100k for it that is how much it is worth and no other investor who knows what they are doing it going to pay you that much for it. And as soon as one tenant moves out or one repair goes over budget you are negative cash flow for the year. In my opinion you will lose money on this deal.
@John Skaggs I appreciate your input, and I did decide to pass on this deal. Looking again at what you said about cap rate, 10% would be incredible... Are there deals like that in Saint Louis that are not in war zones? My search continues!
Yes. I can show you some if you like. In a war zone you should expect more like 20%+
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