I'm analyzing a duplex deal in the the northern Denver Metro and want an outside opinion.
Asking price of $365,000.00
Units were both completely remodeled in 2017, new electrical/plumbing/furnace/AC/roof/floors
Currently rented for a total of $2800 per month (I have verified the leases)
I figured the rates with 20% down, taxes and insurance included, and a lower maintenance budget due to the pristine condition.
I come up with a cap rate of roughly 8%, free cash flow of just over $11k per annum, and a CoCRR of 15%.
This looks to me like an obvious winner, especially in these market conditions where duplex's are hard to come by. Am I missing anything?
Thanks in advance!
The gross rent multiplier shows a 9% return on the gross scheduled income. Assuming a 40% expense factor, your NOI would be about $13,440. With $73,000 down that is about 18% cash on cash, but a 4% cap rat overall. If that is acceptable to you, then cool. The Denver market is really hot right now, but who knows when the party will end. I might advise to buy it, hold it for a few years at most, then sell it using a 1031 exchange for a better cap rate in a sub-market like Loveland.
Hey Sam thanks for posting, its always fun to analyze deals and see where we differ. I would personally assume a 50 percent factor in your operating expenses because 1. Im guessing as I don't know your real numbers 2. This is a multifamily so your probably paying some utilities and landscaping at a minimum 3. to be safe.
Simple math places your $2800 monthly gross at $1400 a month net prior to debt service. I think your overvaluing your investment and gonna shorthand yourself as your mortgage is gonna be just above that number.
Im not telling you this is a bad investment. Just be conservative with your numbers, and know your plan.
Thanks for the replies! To clarify one thing, the units are on separate utilities and all cost associated with that and landscaping are handled by the tenants.
To sum things up....This property seems like a good opportunity for a passive real estate investor to purchase and hold for a long time like @Anthony Dooley mentioned. You probably won't need to do a lot to it, it may pay for itself, but you won't be making a huge ROI or have immediate equity. You still get 1. Loan pay down 2. Appreciation opportunity 3. Tax advantages. If this is what your going for then great.
If you are willing to put in more energy to find a property that is run down, under market value, and has an opportunity to add value, you can reap larger rewards.
Either way, Best of luck and keep us updated!
Thanks for your input @Justin R. ! I'm trying to generate some free cash flow at the moment, and also start working an area for fix'n'flip. I think this property will help with the cash flow goal, and give me a valuable window into this micro-market as a potential for future investing. I'm going to look at it Saturday, we'll see!
@Anthony Dooley , Thanks for your feedback! I understand your cap rate equation, but I'm having a hard time wrapping my mind around your COC calculation. Below is my calcs using, am I utilizing the formulas correctly? Also, what cap rate would you personally aim for?
@Sam Rust If that is the BP calculator, it is confusing. The expenses on your sheet are way low. Your annual property taxes will be higher than that. I estimated your expenses (taxes, insurance, repairs, vacancy) as 40% of the Gross income.
$2800 rent x 12 = $33,600 Gross X .60 (40% expenses) = $20,160 Net Operating Income. My NOI above was incorrect.
$20160 NOI minus debt service of $14,600 per year = $5,560 cash flow
Cash Flow $5560 divided by the $73,000 down payment (cash) = 8% Cash on Cash.
I totally messed that up before. Know your numbers
I can get 15% cash on cash pretty easily in my market, but appreciation is not what you will get in Denver.
@Sam Rust - That spreadsheet looks familiar!
You're using the formulas correctly. However, they are only as good as the data that you put in. How confident are you with the numbers you put in?
As @Anthony Dooley pointed out, the expenses look way too low. Can you post a screenshot of that section?
What part of Denver is this in? An 8.4 cap for a duplex is on the high side. Most are in the 5 to 6 range. On paper, you're either getting a GREAT deal or you need to recheck your numbers.
There are no right or wrong cap rates to shoot for. It all depends on the market and the individual's personal goals. I met quite a few investors in LA that got into bidding wars for 4 cap apartment buildings. The craziest was when some bought a 2.2 cap rate! This guy also owned 1,000+ units... in Cali, where many apartments are worth more than many homes across the country. It's all relative!
Is your main goal to generate a bunch of cash flow? To buy and hold for the long term?
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