Help Me Analyze a Deal

Real Estate Deal Analysis and Advice 11 Replies

Hey All, looking to purchase my first investment property. I'm in the Charleston, SC area and am trying to decide between a SFR or a duplex. Here are the numbers:

Duplex

Purchase Price: 180k

Rent: estimated at 1k/side, 2k total

Monthly cash flow: 300 w/ property management, 500 w/o (I'm planning on managing myself)

Pros: good cash flow, recently updated, good location job-wise

Cons: cigarette smoke (one side is significant), both HVAC units are about 25 years old, house is located very close to major road (noisy), some roof/ceiling damage near vents

SFR

Purchase Price: 180k

Rent: 1600 (probably high end of what I could get)

Monthly cash flow: 16 w/ PM, 175 w/o

Pros: completely move-in ready, recently updated, good location, great neighborhood, likely higher appreciation

Cons: not great cash flow

My calculations are based on: 25% down payment (I'm actually planning on paying w/ cash do close sooner then do delayed financing to free up more money for investing.  Expecting 30 year mortgage at 4.75%), 300/month in taxes, 100/month insurance, 10% for vacancy, 10% for combined repairs/capex, and 10% for PM.  

As I said above, I'm planning on doing my own PM for these properties (which I have no experience w/ but I've got to figure it out anyways).  

The numbers say that the duplex is the better deal, but I feel like the SFR is safer. Any guidance would be greatly appreciated on my first deal.

@Andrew Merritt

Is your strategy buy and hold?  If so I would probably go with the duplex.

The cigarette some you can get rid of, and if you are holding for a long term you are going to need to replace the HVAC at some point on any property. I'd just make sure I was capturing that in CapEx.

It also depends on what 'safer' means to you.

I'm new to this too, but those are my thoughts.

Maybe in the weirdo, but when I read this question my brain said, "Buy a part time job for 45k that pays how much a month or more how much a month?" Why do I have to pay for a job?

@Brad E. Yes, my strategy is buy and hold.  And honestly, I guess I don't really know what I mean by safer.  Maybe easier to sell if I have to at some point?  Maybe fewer tenants to manage?  If I can't figure out what I mean by safer, maybe it's not worth putting in there.

@Andrew Merritt Depending on how motivated the seller is with the duplex, you may be able to negotiate a price with the condition of the HVAC. To replace the furnace and the condenser outside will run you a good few thousand dollars so negotiating that into the price will help for sure. The cigarette smoke can easily be removed too so I wouldn't worry about that too much. 

I would personally go with the duplex because that is more of an opportunity to get a deal on the property itself.

And I am actually moving to the area so I would love to be able to connect with you a bit and see what you think about the area!

I like the duplex just because if you have a vacancy you are still getting some rent from the other unit.

Id go with the multi family! You say it may appreciate better but one of the keys in investing is to never put appreciation as a determinant that's more of an extra! It's the key fundamentals of cash flow that takes the reigns and the duplex will win! Also with multi family appreciation is a different play in a itself! You gain more appreciation by raising rents and cutting expenses improving operations!Long story short two different types of tools with one being sharper.

NJ Agent # 1540411

I would suggest calculating the cost of bringing the duplex up to the condition of the sfd and then look at the numbers again.   Also, for me, I don't count on future appreciation, but I do think hard about what direction I think the neighborhood/area is going.  Charleston is healthy but some areas have a rosier looking future than others.      I would also consider what the future long term maintenance costs are likely to be.   (is one wood siding, the other brick? etc)

The duplex. You need the cash flow and more tenants means more property management experience for you. The more experience you get the quicker you'll be able to understand the job and eventually move out of self-managing if that's where you're going to go eventually. But like John said, the property specifics and the neighborhoods would matter very much to me. On another note if you own that SFR in a couple years and appreciation has been minimal and rents have been stagnant you've likely lost money and still can't afford management on that property.

Thanks for the advice everyone, looks like it's unanimous for the duplex.  My agent talked to the owner and he's willing to fix at least a few things (roof issues, new paint/carpet...) and I'll ask about a discount b/c of the older HVAC units as well.  

@Dylan Tettemer just send me a message if you have any questions.  I'm new to this but I'd like to help out any way I can.

Hey guys, I put an offer in on the duplex for 160k today.  I'll let you know how it goes

They countered at 175 firm, so I recountered at 175 and they pay closing fees.  My agent just told me they've accepted, now waiting for the official contract to be signed.  Thanks for the advice everyone!