Duplex in Nashville

11 Replies

Hello all! I need help analyzing a duplex deal in Nashville. On the surface, it seems like it should cash flow but my analysis says different. This would be my first duplex so I want to make sure my numbers are relatively accurate.

2312 sq ft, 4 bed 2 bath each side, both sides currently rented for $1,100 each. The duplex is located in an up and coming area but there is a building next door that is in pretty bad shape. List price is $230,000 and it does not appear to need much in renovation.

Estimated sale price: $220,000

Gross annual rent: $26,400

Estimated annual repairs: $1,200

Taxes: $4,100

Vacancy: $1,100

Property mgmt: $2,640

Capex: $1,200

Insurance: $1,500

P&I: $12,000

Estimated cash flow after all above $3,860

DP + c.f. = $48,000

Cash on cash return = 8% 

This just seems way too low for a duplex especially when I can buy an SFR in Memphis and get 15%.

I would really appreciate your thoughts on this deal as well as my analysis.

What neighborhood is it in

It is cash flowing.. ~1% which is pretty typical of Nashville right now.. .5-1%
Tough to find anything above that
Do you have other properties in town that are doing better that you've purchased in the last 12mo?

That looks like a pretty good buy and hold for this area. We only do BRRRs so I don't watch the turnkey market too closely, but it seems like prices have shot up to the point where that is a solid return if you want to stay in Nashville. With appreciation the way it is though, Sean has a great point regarding the neighborhood. We have benefited tremendously from owning cash flowing rentals in neighborhoods where prices went from 100k to 300k in the last 3 years. I understand cash flow first, but you shouldn't ignore the rising tide either. 

@Steven Gillmer ,

I operate in Memphis so I can't speak to the Nashville area specifically, but I'll give my two cents on the analysis:

  • I would probably be a bit more conservative with the vacancy rate. I know that the overall vacancy rate for Nashville is ~4%, but duplex's are generally higher. I would put in 10% to be safe.
  • Half of one percent of the value of the property is pretty low for estimated maintenance and repairs. I usually put in one to three percent depending on the location and age of the property. Since it sounds like it's in the path of progress (even with the bad apple next door) I would put 1-2% depending on the age.
  • I also think that the Capex estimate is low. I'd probably double it (https://www.biggerpockets.com/renewsblog/2015/10/1...).
  • You mentioned that it's a duplex but since you didn't include anything in the numbers I imagine the tenants are fully responsible for all utilities and shared lawn care, right?
  • Lastly, property management companies generally charge a 10% management fee as you've calculated, but in my experience they also charge a fee for tenant placement. In Memphis it's generally about one half of a full month's rent (I don't know about Nashville). You may want to add this in as well.

I'd go with your gut and pass on this one if you can't get it for a lower price.

1% rule rentals.. It never ceases to amaze me that people settle for that return. Send out mail, stop looking at the MLS and find a much better deal to buy. This is an average deal at best. Buy GREAT deals not average deals.

Thanks everybody for the feedback. It's always good to hear other's thoughts and opinions.

Originally posted by @Devan Mcclish :

1% rule rentals.. It never ceases to amaze me that people settle for that return. Send out mail, stop looking at the MLS and find a much better deal to buy. This is an average deal at best. Buy GREAT deals not average deals.

GREAT deals aren't always possible for out-of-town investors who might also have full-time jobs, and other commitments including being invested in the equity/bond markets. An investment like this might just be a point of diversification, akin to investing in dividend paying stock in a strong company (like MO). Especially in Nashville, 1% deals are also becoming harder to find. 

@Amit Kal that is 100% false. As an out of state investor you can still find great deals. You can find someone local who is marketing in your target market and partner with them on the deals. Or you can send out your own marketing and have someone with boots on the ground to help you. I'm finding 1.5-2% deals in Nashville so why can't you? Being out of town, having a job, none of that is an excuse. Settling is a form of not working hard enough

@Devan Mcclish do you shop East Nashville? All of my recent projects have been there.

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