Guardians of the Equity,
I am currently under contract on a wildly mediocre looking investment duplex (2b/2ba per unit). Since it is my first investment property (long time BP lurker, first time poster) I thought I'd put it out there for the community to analyze. Looking for any and all feedback, feel free to be blunt. I am also looking for advice on ways to set myself up for success going forward. I have read a lot on here but everything helps.
Here are the numbers,
Purchase Price: $165,000 as-is
Financed: $123,750 (25% down, couldn't put any less down with a conventional lender)
Mortgage Rate: 5.25% (no points); 5.35% APR -rates are on the rise it seems.
Estimated closing costs: $4,500
Initial cash invested: $46,310
Gross Rent: $1,725 ($875/$850)
Operating Expenses: $815 (includes mgmt fees @ 10% & capex of $275/mo)
Cash flow: $140.77
Principal reduction: $142
Total ROI: 7.4%
Possible near future repairs: Roof (Estimated at $4,000); windows (Estimated at $5,000). Don't think either require immediate action but I have a home inspection scheduled for Wednesday (4 days from now) to look into them and other potentials further.
Other property info: Current tenants have leases until August and January; Slab foundation; stand alone a/c in each unit; split meters for water/electric.
I am planning on managing it myself, which would double my cash on cash and bump my ROI to over 10% until I am comfortable with the cash flow and willing to pay for management.
Having started my REI education about a year and a half ago after stumbling across BP podcasts as entertainment for my daily commute I am excited to finally take some action. This might not be the best deal, but it was the best one I could find in over a year. Time will tell and I'll keep everyone posted.
Thank you for taking a look and for your feedback,
P.S. If there is a way for me to upload my calculator (pictured above) I will, or I can e-mail it to anyone who asks. It has separate tabs for CapEx and Mortgage so you can keep the main tab cleaner. Also, you can edit it however you'd like to make it look pretty or tailor it to any of your potential investments.
Looks ok, like you said mediocre but you have been searching for a year and you have to start somewhere right?
3% for maintenance seems a little low, but you are saving a good amount for CapEx which is good since you know you have roof and windows coming up.
Your spreadsheet calculated a 1% cap rate? Not sure what math is in that sell but this is more like 6% with the numbers you gave us. Might also look at making the next leases end in the summer so you get on a summer turnover cycle.
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Thanks for the once over. I'll bump up my maint expenses. Hadn't been using the cap rate lately, but I had the formula accidentally locked on cash flow. it's changed to NOI now and calculates 6%. Thank you for pointing that out. I think market cap rates are around 5% so pretty close.
I'm hoping I can raise rents to $900 and $925 since $900 seems to be the average in the area. Any reason you recommend tenant turnover in the summer?
That would be a nice rent bump. It might be different in your market but in a lot of places there are just more people moving in the summer, so you would have a larger tenant pool to choose from, compared to the winter when fewer people are moving. Same rationale for when it comes time to sell.
You mentioned somewhere to upload your spreadsheet. Not sure if you have looked at the FilePlace but you can add yours there and look through a ton of other stuff people have uploaded.
@Marty Sheehan 3% CoC is pretty low. When are the leases up that you can raise rents?
I always try to pay for what’s in front of me and try to not speculate on rent increase etc. if I do manage to increase rents or pass expenses off to the tenants than that extra money is gravy.
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