Help with a deal: C neighborhood duplex

2 Replies

I could use some help in thinking through a rental property.

Duplex: both units are 2/1... 1920's yrblt.  Asking price is $40k but might get it for $28k (negotiating).  Some deferred maintenance (paint, roof, interior work when tenants move out). With repairs... lets say $40k into it?

I don't see appreciation in this neighborhood.  Near a university but on the edge where the neighborhood starts going downhill.  A C or C- area.

Numbers:

  • Total gross rent is $700 / month... I think this could be at least $800/month, but evaluating based on what it is.
  • Taxes and Insurance $110/mo
  • Utilities $80 / mo
  • management fees $50/mo (8% management... not to mention leasing fees that I put into the vacancy number)
  • repairs $140 / mo. (old building is going to need repairs... is 20% too high?)
  • vacancy $130 / mo (I did one month plus the leasing costs)

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  • Cash flow $190/ mo if there is no mortgage.

I would really like to BRRRR my rentals... so with a mortgage, it drops down to about $30/mo.  Which is no good

My conclusion: This could be ok if I can get the rents up... but still not a great deal... and I don't like betting on ifs. 

Do you agree?  If I could get it for even less, is there a price point it does become worth it?  Seems to me that rent level and the expenses make this a weak deal.  What thoughts do you have?

$30/mo is really not great. At those numbers this property becomes a liability, not an asset. I generally shoot for cash flow of $200/mo per unit, but as long as it's 12% cash on cash ROI, I can work with the $200/mo.

I see the $40k as being quite high potentially. Either it's really, really run down, or you are estimating finishes that are too nice for the area. One other thing, if you spend $40k in repairs, presumably, you can drop your estimated repairs per month budget.

I would work with the numbers until you can get closer to 12% ROI. Too much can go wrong with rentals to settle for any less.

Thanks Allan.  I did not type my post out well... I was aiming to be all in at 40k... so 10-15k in repairs.  You put it well.... too much can go wrong to settle for less.  If I aim at 12%, even a rent increase would not offset the expenses enough to hit 12%.

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