Please help analyze my potential deal (Deal or No Deal)

9 Replies

526 harwood street, Joliet, Illinois

Duplex x2 (2 bedroom 1 bath), electric heating, window a/c (bottom unit doesn't have a/c), no garage

The current tenants are paying $2,200 total for poor conditions.  Both tenants don't have working ovens or stoves.  The upper tenant doesn't even have the gas activated for whatever reason.  The place needs a new roof and has mold in the attic.  My contractor estimated about 20k in repairs and roof/mold will cost around 10k.  I don't understand how the tenants are paying so much.

The average rent in the area is $950.  The location has low crime rate, poor schools, city with plenty of amenities, etc.  This is definitely a class C property in a class C neighborhood.  It's a quiet neighborhood as far as I know.  You'll need a car to get around however.

This duplex is not worth 145,500 and most likely never will be.  The 115,500 is probably the value of the duplex with very little repairs.  Unfortunately, this place requires a good deal of repairs.

Thanks for reading.  Any advice would be appreciated.

Daniel,

It sounds as though you may run into much more in repairs than expected.  If the unit is truly in that bad of shape and has mold in the attic then there is a chance of it also being found in the bathrooms, etc.  To me $10k for roof and mold remediation seems a bit low.  I would certainly take a hard look at the structure and look for possible areas that have been overlooked.

As for your other concern, $2200/ mo is very suspect.  Have you been able to confirm this with proof of payment or lease agreements?  

Thanks for the input Scott!

I had the roof inspected and it comes out to $7,088.00.  There's definitely mold in the attic but not everywhere.  The inspector mentioned mold was located in 3 spots.  The inspector did not find any mold in the bathrooms.

I'm still waiting on the leases, tenant estoppels, etc. from the seller.

I'm a but surprised about that rent for a 2 bed. Maybe if this was west side with nice finishes and a large floor plan. I'd definitely verify. Could be possible with section 8? Still kinda doubtful. 

I'd say that you're probably ok on a cashflow perspective if that's the real rent. But as you've noted, you're not going in with any equity. I'd make a stink of the repairs and ask for a lower purchase price. Seems kinda risky as is. 

Thanks for the reply Aaron!

I am surprised myself the tenants would pay that much also.  I’ve been waiting for leases, tenant estoppels, etc for a couple of weeks now.  I did notice on truilia that they were looking for a renter for unit number 2 which was last updated July 1, 2018.  I did meet the tenants with the owner at the 2nd unit and they seemed pretty quite.  

I did attempt to get the owner to pay for the repairs or do some of the repairs but he said no.

I can get out of this deal pretty easily.  I didn’t realized there was so much to repair till after the inspection.

That's what inspections are for! Trust me, you'll find even more work to do once you start the repairs. A healthy repair budget is a must.

Good luck - if you need help with this deal or anything else in Joliet feel free to send me a message. I'm investing in this space also.

Did you run the rents through rentometer.com? That's what I would recommend doing to ensure that the rents you will get in the future will be similar to what they're projecting.  Also, I would say you need to confirm with the tenants that they're paying that much for rent.

Otherwise, it looks like a fairly solid deal.

Thanks for the reply again Aaron and thanks for replying Bob.

I feel like $30,000 is a pretty healthy repair budget.  I'm also calculating 20% of the rent in capital expenditures and maintenance ($440 per month).

I did run the rents through rentometer.com and the average is $950.  The units are a little spacious however, over 1000 square feet each.

I'm dying to see the leases and other possible documentations.  I'm still waiting on them.

It's such a difficult decision to make.  I don't want to miss a deal cause I'm too afraid but I also don't want to make a costly mistake that will affect my life down the road.  One step at a time I guess.

Looks like your purchasing a Distressed Property for Retail price and then renovating... 

ARV of $115k with a total project cost of $150k....??? Unless I'm missing something you should be buying this at a discount of 30% minimum - repairs (For a Flip)... Purchase should be ballpark of 50k provided your ARV and renovation projections are accurate. For a rental I like to be around 60% ARV to boost cash flow which brings purchase price to around $40k.

Not trying to beat you up over the analysis, but that's something you don't want to be that far off on. Also rent is typically 1% of the ARV which would put the rent in the $1000 - 1100 range. This is different for each area so look at some rental comps to see what yours is for your area.

Hope this helps.

Jeff V

Thanks for the reply Jeff.

I ended up not purchasing the property.  One of the reasons for not purchasing the property was because the property would not be worth 150k after repairs.  You are absolutely correct Jeff.

I’m back on the market looking for a deal!