Duplex Analysis - Cincinnati, OH: 2 property options

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Duplex Analysis - Cincinnati, OH: 2 property options

Account Closed
New to Real Estate · OH/TN/FL · Member since 2016 · 135 posts · 35 votes

Hi BP! 

I'm a newbie looking to make my first purchase: a duplex. I'm planning to use Navy Federal Credit Union for financing with a 0% down VA Loan (my husband is Active Duty Navy) and house hack while working F/T. The analysis however does not include house hacking as I'm focused on what this will look like 12+ months from now when we move out. This is my first time posting an analysis, so please be gentle...all constructive critiques welcome of course!

Both duplex options are located in the "up and coming" Pleasant Ridge neighborhood in Cincinnati, OH.  Thoughts on my numbers/missing anything? Suggestions? Would you do either deal or should I keep looking??

I'm definitely still reading, listening, learning as much as I can everyday so if I totally goofed up something, please advise! Thanks!!

Option 1, 1/1 & 1/1

Mortgage Loan 84,000

Loan Interest 4.5%

Term 30 yrs

Potential Rental Income 12,600 (550 + 500)

Assumed Vacancy, 8% 1,008

Gross Operating Income 11,592

Property Taxes, Est. 2.5% 2,100

Insurance 450

Mgmt Fee, 8% 1,008

CapEx, 10% 1,260

Total Expenses 4,818

NOI 6,774

Annual Debt Service 5,229

CF Before Taxes 1,667

Monthly Income per unit, pre tax 69.44

Option 2, 2/1 & 1/1

Mortgage Loan 120,000

Loan Interest 4.5%

Term 30 yrs

Potential Rental Income 16,440 (745 + 625)

Assumed Vacancy, 8% 1,315

Gross Operating Income 15,125

Property Taxes, Est. 2.5% 3,000

Insurance 450

Mgmt Fee, 8% 1,315

CapEx, 10% 1,644

Total Expenses 6,409

NOI 8,716

Annual Debt Service 7,296

CF Before Taxes 1,419

Monthly Income per unit, pre tax 59.14

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William Walker
Investor · Wilmington, NC · Member since 2016 · 211 posts · 262 votes
9y
Originally posted by @Ralph R.:

@William Walker  . You keep referring to risk. Can you explain what risk to the landlord is there when   the bank has financed 100% of it??  I'm not seeing that either.

The risk is that she has a major property repair, has a decline in the property value, or has any of the tenants that people post about on this site every day.  It's the same risk that is taken on with any investment property.  I don't understand how you don't think there is any risk with this or any property.  One of the things to make the reward worth the risk is to have the property cash flow.  By not being able to see any money out of the deal for a very long time while possibly having to sink money into the property is not what most first time investors would see as ideal. 

I can get a 100% financed property as well through the VA, but I'm not going to go grab just any property because someone else is financing it. If I had plenty of investment properties with positive cash flow, no limit on VA loan amounts, and didn't want any money out of the deal for 5-10 years it would be much more enticing. Most investors use funds from their first property to fund future deals. This investor wouldn't be able to do that and I think it would stunt their long term investment possibilities.

Again, I appreciate your post and the civil discussion.

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  • Kevin Siedlecki
    Investor · Madison, CT · Member since 2014 · 710 posts · 458 votes
    9y

    @Account Closed. 

    I don't love either deal; I'd keep looking. You're working with a very tight margin on both deals. If you change your assumptions to be more conservative, say 10% vacancy, 10% management, and 15% capex, you're close to losing money. Those numbers are guesses right now, and other than management, there's really no way of knowing exactly what they will work out to in the long run. It might work out as you've put forward here, giving you a COC ROI of about 7% on deal 1 or less than 4% on deal two. If these were big deals where those small percentages were thousands of dollars, that might be acceptable, but for small multis with such limited cash flow, you're taking a big risk. A couple things go wrong, and you lose all your profit for a year or more.

    2Reply
  • Kevin Farrell
    Specialist · Indianapolis, IN · Member since 2016 · 74 posts · 43 votes
    9y

    I would look for a deal where you can get $100 cash flow per month after all expenses. If you can do that with the conservative approach that Kevin Siedlecki mentioned, you will be fine. Run the numbers for better cash flow and make that your offer.

    Good Luck.

    1Reply
  • Account Closed
    OP
    New to Real Estate · OH/TN/FL · Member since 2016 · 135 posts · 35 votes
    9y
    Originally posted by @Kevin Siedlecki:

    @Account Closed. 

    I don't love either deal; I'd keep looking. You're working with a very tight margin on both deals. If you change your assumptions to be more conservative, say 10% vacancy, 10% management, and 15% capex, you're close to losing money. Those numbers are guesses right now, and other than management, there's really no way of knowing exactly what they will work out to in the long run. It might work out as you've put forward here, giving you a COC ROI of about 7% on deal 1 or less than 4% on deal two. If these were big deals where those small percentages were thousands of dollars, that might be acceptable, but for small multis with such limited cash flow, you're taking a big risk. A couple things go wrong, and you lose all your profit for a year or more.

    That makes a lot of sense. Thank you! Going forward I'll stay on the more conservative side with my percentages regarding CapEx, Mgmt, etc and keep looking for better deals.

    0Reply
  • Account Closed
    OP
    New to Real Estate · OH/TN/FL · Member since 2016 · 135 posts · 35 votes
    9y
    Originally posted by @Kevin Farrell:

    I would look for a deal where you can get $100 cash flow per month after all expenses. If you can do that with the conservative approach that Kevin Siedlecki mentioned, you will be fine. Run the numbers for better cash flow and make that your offer.

    Good Luck.

     Thanks! I'll definitely keep that in mind and keep searching for a better deal with adequate cash flow.

    0Reply
  • John Leavelle
    Investor · La Vernia, TX · Member since 2015 · 1k+ posts · 865 votes
    9y

    @Account Closed

    Thank your husband for his service.

    A couple of other things to think about.  Will the properties have any Rehab needs?  You also need to account for minor repairs/maintenance that will occur.  I would recommend a minimum of 5% (depending on age and condition of the property).

    Since you plan on using a VA loan (no down payment) your mortgage payments will be higher. Therefore, it is important you find great deals to make your cash flow goals.

    Good Luck.  :)

    1Reply
  • Account Closed
    OP
    New to Real Estate · OH/TN/FL · Member since 2016 · 135 posts · 35 votes
    9y
    Originally posted by @John Leavelle:

    @Account Closed

    Thank your husband for his service.

    A couple of other things to think about.  Will the properties have any Rehab needs?  You also need to account for minor repairs/maintenance that will occur.  I would recommend a minimum of 5% (depending on age and condition of the property).

    Since you plan on using a VA loan (no down payment) your mortgage payments will be higher. Therefore, it is important you find great deals to make your cash flow goals.

    Good Luck.  :)

     I definitely will!

    I had been looking at properties which generally did not need any rehab, although that's a great point and I will certainly keep that extra percentage in mind! I think you're totally right though - I really need to find/create a great deal since we would like to use a no money down option. Thanks!

    0Reply
  • Matthew Schroeder
    Investor · Carmel, IN · Member since 2014 · 332 posts · 245 votes
    9y

    Make sure to have an agent pull comps on the property.  Putting aside the cash flow projections (which are indeed important) for a moment, the comps will tell you whether you are getting a reasonable deal, making money (equity) at Day 1 (i.e. buying below market value), or, paying too much.  

    Many times, novice investors will be so focused on the cash flow projections that they forget to remember that Rule #1 is "make money when you buy".

    Good luck!

    1Reply
  • Tyler Weaver
    Investor · Cincinnati, OH · Member since 2008 · 319 posts · 243 votes
    9y

    I am excited to see your interest in Pleasant Ridge. It is the neighborhood where I live.  I think you need more cashflow for things to make sense to me. What made you choose to look for duplexes rather than quads?  Usually duplexes have more of a house feel to them and quads are apartments.  Which can be good and bad. Probably bad from a livability perspective for when you are here for 12+ months.  But then good in that you should be able to find something that cashflows much better for you after you move out and continue to hold the asset. 

    Depending on where option 1 is in Pleasant Ridge you should be able to rent for more than 550 a month. Might require a few updates from current condition though. 550 a month is more reflective of where the market was 3 years ago than presently.  

    1Reply
  • Account Closed
    OP
    New to Real Estate · OH/TN/FL · Member since 2016 · 135 posts · 35 votes
    9y
    Originally posted by @Matthew Schroeder:

    Make sure to have an agent pull comps on the property.  Putting aside the cash flow projections (which are indeed important) for a moment, the comps will tell you whether you are getting a reasonable deal, making money (equity) at Day 1 (i.e. buying below market value), or, paying too much.  

    Many times, novice investors will be so focused on the cash flow projections that they forget to remember that Rule #1 is "make money when you buy".

    Good luck!

    Thank you! That's important too and indeed something I wasn't as focused on. I am working with an agent who is also a BP member but I'll be sure to put as much emphasis on buying right as I've been putting on cash flow! 

    0Reply
  • Account Closed
    OP
    New to Real Estate · OH/TN/FL · Member since 2016 · 135 posts · 35 votes
    9y
    Originally posted by @Tyler Weaver:

    I am excited to see your interest in Pleasant Ridge. It is the neighborhood where I live.  I think you need more cashflow for things to make sense to me. What made you choose to look for duplexes rather than quads?  Usually duplexes have more of a house feel to them and quads are apartments.  Which can be good and bad. Probably bad from a livability perspective for when you are here for 12+ months.  But then good in that you should be able to find something that cashflows much better for you after you move out and continue to hold the asset. 

    Depending on where option 1 is in Pleasant Ridge you should be able to rent for more than 550 a month. Might require a few updates from current condition though. 550 a month is more reflective of where the market was 3 years ago than presently.  

    That's awesome! I'm happy to meet someone who actually lives where I'm thinking of living/investing. Well we've been working with Navy Federal and there was push back about larger than a duplex for a primary residence; however, my husband loves them so we just decided to look for a duplex instead. Also thank you very much for the heads up on rent likely being an underestimate! I do think I'll keep looking for something that cash flows better.

    0Reply
  • Ben Gammon
    Property Manager · cincinnati, OH · Member since 2015 · 78 posts · 20 votes
    9y

    Not a fan of either deal.Especially in Cincy. I'd try to hit at least $100 cash flow per door and hit at least the 1% rule which should be achievable in Cincy. Did you roll maintenance in with CapEx?

    0Reply
  • Account Closed
    OP
    New to Real Estate · OH/TN/FL · Member since 2016 · 135 posts · 35 votes
    9y

    Hi @Ben Gammon. I'll definitely try harder then! Yes, I rolled them in together since the spreadsheet I was using broke the expenses out that way. Would you recommend them being separate? If so, what percentage would you say for each? Thank you!

    0Reply
  • Ben Gammon
    Property Manager · cincinnati, OH · Member since 2015 · 78 posts · 20 votes
    9y

    Depends on the condition of the home and the scope of the rehab but I generally do 5% for maintenance and 5% for CapEx.

    0Reply
  • Account Closed
    OP
    New to Real Estate · OH/TN/FL · Member since 2016 · 135 posts · 35 votes
    9y
    Originally posted by @Ben Gammon:

    Depends on the condition of the home and the scope of the rehab but I generally do 5% for maintenance and 5% for CapEx.

    Oh, well I'm covered then. I bumped up the whole category to about 12%, so approx. 4% maintenance and 8% CapEx. Thanks for sharing yours too!

    0Reply
  • William Walker
    Investor · Wilmington, NC · Member since 2016 · 211 posts · 262 votes
    9y

    @Account Closed

    Do you have a reputable PM company that has quoted 8%?

    Are the sale prices firm on these, or is the price you listed what you think you can negotiate for the properties?

    Can you and your husband put money down on the properties to increase your cash flow?

    What state are the properties in?  What level repairs do they need and will they need any major repairs such as a roof anytime soon?

    If these numbers are all firm, then I agree with their isn't enough cash flow per door. 

    0Reply
  • Account Closed
    OP
    New to Real Estate · OH/TN/FL · Member since 2016 · 135 posts · 35 votes
    9y
    Originally posted by @William Walker:

    @Account Closed

    Do you have a reputable PM company that has quoted 8%?

    Are the sale prices firm on these, or is the price you listed what you think you can negotiate for the properties?

    Can you and your husband put money down on the properties to increase your cash flow?

    What state are the properties in?  What level repairs do they need and will they need any major repairs such as a roof anytime soon?

    If these numbers are all firm, then I agree with their isn't enough cash flow per door. 

     I have not settled on a PM company yet; however, after consulting with a few current investors in the area and a few RE Agents, I was advised to use 8%. Would you recommend a different figure? The prices listed are reasonable prices I can negotiate, per the RE Agent I am working with. There is even wiggle room to negotiate further, though I preferred to keep it conservative. 

    While we do have some money we could put down, we really just wanted to take advantage of the 0% VA Loan and use the rest for a down payment on an investor property a few months from our first purchase. I'd rather find a better deal than to make force these. The properties are both in Cincinnati, OH. Repairs would be minimal to none with at least 5 or so years without any major CapEx.

    For future reference, is $100 per door the goal to shoot for generally? If not, what approximate amount per door cash flow do you personally use as a guide?

    Thank you for adding to the conversation! 

    0Reply
  • William Walker
    Investor · Wilmington, NC · Member since 2016 · 211 posts · 262 votes
    9y

    For the PM rate your best bet would be to call one or two of the PM companies you're thinking about using and ask them their rates and any other fees.  Mine charges a %, but there is a fee for placing a new tenant, renewing a tenant, and for twice yearly inspections with photos and a report. 8% seems low to me but it might just be the area. I don't think 8% is unheard of or anything, I was just curious. 

    That's good about minimal Capex. I'm not sure I understand going with one of these deals with no money down and then putting money down on a different investment property. Maybe just choose one to focus on for now.

    And I'm not really a fan of the $100 a door theme. If the house cost 30k or if the house costs 200k, that's a big deference on your return. I would look at the rest of the numbers before saying $100 a door is good.   I can't tell you an exact # as each investor had their own goals, but I think the vast majority would say the returns aren't enough for these deals with the way they are structured. 

    0Reply
  • Account Closed
    OP
    New to Real Estate · OH/TN/FL · Member since 2016 · 135 posts · 35 votes
    9y
    Originally posted by @William Walker:

    For the PM rate your best bet would be to call one or two of the PM companies you're thinking about using and ask them their rates and any other fees.  Mine charges a %, but there is a fee for placing a new tenant, renewing a tenant, and for twice yearly inspections with photos and a report. 8% seems low to me but it might just be the area. I don't think 8% is unheard of or anything, I was just curious. 

    That's good about minimal Capex. I'm not sure I understand going with one of these deals with no money down and then putting money down on a different investment property. Maybe just choose one to focus on for now.

    And I'm not really a fan of the $100 a door theme. If the house cost 30k or if the house costs 200k, that's a big deference on your return. I would look at the rest of the numbers before saying $100 a door is good.   I can't tell you an exact # as each investor had their own goals, but I think the vast majority would say the returns aren't enough for these deals with the way they are structured. 

     Thanks for your detailed response! I'll certainly reach out to the PM companies as well as really get more specific with my numbers. 

    0Reply
  • George Emmons
    Milford, OH · Member since 2016 · 47 posts · 13 votes
    9y

    William is right Tiara,  My Family owns and operates a medium size property management company here in Cincinnati.  I would assume a 10% management fee not 8%.  Those companies that offer 8% usually have a leasing fee that is usually the first months rent.  So you have to figure, 8%  plus 1 leasing fee per year.  That will bring you back up to the 10% mark if not higher.  If you would like to know how our company works and our payment structure feel free to msg me.

    Cheers!

    George

    1Reply
  • George Emmons
    Milford, OH · Member since 2016 · 47 posts · 13 votes
    9y

    Also I would have to agree with most everyone on this thread.  I think you can find better. Inventory is a bit low right now but if you are patient and have the right people looking you will find something that will fit your scenario better than these two options.

    1Reply
  • Account Closed
    OP
    New to Real Estate · OH/TN/FL · Member since 2016 · 135 posts · 35 votes
    9y
    Originally posted by @George Emmons:

    William is right Tiara,  My Family owns and operates a medium size property management company here in Cincinnati.  I would assume a 10% management fee not 8%.  Those companies that offer 8% usually have a leasing fee that is usually the first months rent.  So you have to figure, 8%  plus 1 leasing fee per year.  That will bring you back up to the 10% mark if not higher.  If you would like to know how our company works and our payment structure feel free to msg me.

    Cheers!

    George

     Thank you for clarifying! I'll be sure to reach out once I get a property under contract. 

    0Reply
  • Account Closed
    OP
    New to Real Estate · OH/TN/FL · Member since 2016 · 135 posts · 35 votes
    9y

    Thanks George! I've definitely decided to keep looking. 

    1Reply
  • John Blythe
    Investor · Fishers, IN · Member since 2015 · 85 posts · 22 votes
    9y

    Glad to see you out took the advice of continuing to look to heart so quickly! I wish I'd done more vetting of my first property earlier this year. While it now cash flows decently (~150) it is only bc of dumping much more money into it than we'd originally planned. Had a couple near death experiences financially speaking and only have a 10% CoC ROI to show for it.

    Great advice from "The Millionaire Real Estate Investor" concerning prudence and precaution is along the lines of "I'd rather pass up a good deal than jump into a bad deal."  

    Best of luck finding the next one. Remember: you make your money going into the deal, so fight hard for great terms!

    0Reply
  • David Bermanski
    Investor · Chesterfield , MO · Member since 2015 · 14 posts · 8 votes
    9y

    I have family within a  mile or two of where you are looking. I agree with that you can do better in that area. I have been going to Cincinnati many times over the past 10 years. Cincinnati is on the rise in general but I wouldn't call Pleasant Ridge very up and coming although it is worth looking there.  You can likely find a better deal there.  Make sure your numbers work the way the market is now and if the price appreciates that's extra. Thanks for your husband's service . 

    0Reply
  • Account Closed
    OP
    New to Real Estate · OH/TN/FL · Member since 2016 · 135 posts · 35 votes
    9y

    Following the sage advice here on BP, I made sure NOT to form any emotional attachments to the properties @John Blythe, so it made it easier to move on! I really appreciate everyone helping me see that settling just so I can say I "have" a property is a terrible idea and certainly is a bad move if I want to consider myself an investor! 

    I'm glad to hear you were able to get the property to cash flow. On the bright side, you learned a great lesson for all your deals going forward!

    1Reply
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