Deal Analysis in Charlotte, NC

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Need help on a deal analysis. Looking at a duplex in Charlotte. House appears to have been fully renovated. Open house tomorrow. Some numbers such as insurance and repairs are unknown. I will update after I see the property and get final quotes. Total S.F.: 3020 Units: 3 BR/2BA List price: $250k ARV: $250k Estimated repairs: $5k Estimated rent: $1250-$1450 10% Property Mgmt 10% Repairs 10% Capital Ex 10% Vacancy NOI: $2500-$2900 Debt service: $1013 Taxes: $155/mo Insurance: ~$125-$170? Net monthly cash flow: $162-$402 Upfront expenses: Down payment (20%): $50k Closing costs: $5k Repairs: $5k Total: $60k CoC: 3.2% - 8.04% Here’s the twist (and why I’m considering). I want to STR one unit to start. AirDNA says I should be able to average $198/nt at 49% occupancy for a gross of 35k/yr. Also, a similar 3 BR/2BA unit nearby is about 50% booked from Jan 5 - March 31st 2018 and fully booked from April 1st 2018 - January 1st 2019 at 150/nt. 75% occupancy at $150/nt puts gross rent at $41k/yr. Adjusted numbers based on 1 unit LTR at $1400/Mo and 1 unit STR at $2900/Mo as follows: LTR (60% net): Income: $1400 Expenses: $560 Net: $840 STR (50% net): Income: $2900 Expenses: $1450 Net: $1450 Combined net: $2290 Debt Service (PITI): $1338 Additional upfront for furnishing 2nd unit: $10k CoC: $952 for a total CoC ROI of 16.32% NOI: $2290 or 39.25% I fully expect the LTR rent rate to be closer to if not higher than $1400/Mo and repairs/cap ex to be closer to 5% making the deal much better. Also, both units are large enough that I could potentially move into one unit later, sell my current house, and simply rent the second unit saving me about $830/Mo in personal expenses. Thoughts? Anything I missed?

Hey Jeshua,

Only you can decide what’s the right deal for you oven hot return requirements, risk tolerance, cash position and future plans. You certainly seem to have a plan an some optionality on this deal that increases what you can do with it to make the return you require. 

I didn’t completely follow your math but I think the rent you quote of $1250-1450 is per side?  

In your calculations you seem to be calculating what you feel to be the best or most likely case given the rental market today. What if Charlotte regulates short term rentals which changes the market or increases your cost? What if your expenses are higher then you expect or if your vacancy is more than budgeted?  Do you have any other costs that you will take as owner - landscaping for instance?

What happens when you stress test this deal with the worst probable scenario you can think of?  Is it still manageable for you?  The long term risk is in the downside and the delta between your costs + debt service and a conservative cash flow estimate. 

Also, have you budgeted for kitting out and furnishing your short term rental side?

If you proceed with this one, good luck. It does look like you have something that you can probably make work and you have a good, well thought out plan in terms of various options to make it work. 

@Josh Stack I’m trying to vet out some of the options as fast as possible. The prices are per side. I’m trying to get some more concrete numbers on things like rental rates and insurance. As you probably noticed I’m having to estimate some fairly large swings in some places until I get better feedback.

Some things such as STR expenses are going to be a little harder to nail down as quickly so I tried to play it a little safer. I have considered the possibility that Charlotte could change their position on STR’s which is why I want to make sure a deal cash flows as an LTR.

I would love to get feedback from people in the Charlotte area with STR experience but there doesn’t seem to be anyone actively involved on this site doing STR’s in Charlotte yet.

@Josh Stack I walked through the unit and let’s just say they had a heck of a photographer.

I know some of my math was a little hard to follow but that was more due to the app jamming all my stuff together when I create a new thread.

Long story short, my realtor got back to me with comps and finally got the insurance quote back. At asking price the numbers would have been tight assuming no repairs and max rent on a LTR for both sides. Turns out the property’s ARV is a maximum of $225k and likely closer to $200k. Worse yet, the property needed somewhere in the neighborhood of $40-$60k in repairs. To buy it right I would have to get it for $100-$120k before repairs and, with the crowd that showed up, that’s not likely to happen so I decided to pass.