[Calc Review] Help me analyze this duplex deal the is above comps

7 Replies

Howdy @Brian McPheeters

Is $175,000 the Sellers Asking price?  What condition is the property in?  It had better be the nicest place around if your comps are right.  

Only put in an offer that you are comfortable with. Start with the $145,000 for instance.  That gives you negotiating room.  The Seller needs to justify the High Asking price.  Just as you do the lower offer price.  It’s all part of the game.

Your Expenses are more optimistic than I prefer. For analysis and budgeting purposes it's always wise to stay conservative. For example: I never go below 8.34% (one month rent) for Vacancy. If it ends up lower for the year, great, you made more money that year. But, if you only budget 5% and have a month long vacancy then your Cash Flow takes an unexpected hit. The same goes for CapEx reserves. I use 10% until I have the property inspected to determine the current condition and life expectancy of all major components and appliances. Then you can adjust the amount for your reserves requirement.

I'm just getting started into real estate for myself but I have helped others for years especially with researching properties and numbers. I am no expert by any means... But I have been in and around real estate for over 27+ years. 

I cleaned for several years for an appraiser. One time I asked him how they even started a new appraisal. He told me one of the first steps was to pull the county assessed tax ticket value. 

He said very seldom does an appraisal fall below the county assessment and that's with extenuating circumstances that has happen since the last assessment. Fire, foreclosure damage, property unattended or intentional or unintentional damaged, etc. He said but even "bad areas" normally appraise several % over county assessment. 

Some counties allows you to pull several reports on the county assessed value. Some of the reports are a short tax assessment and others with a much more detailed description of property, several years of sale history, tax appraisal history, sketches of square footage, road conditions, a current picture, owner history, and comments made by last assessor. You can search for these reports under the counties.gov.com website.

Example Orange County, Ca. www.ocgov.com go under something like .... property tax assessment and real estate.

Take your sold history value and find the percentage of mark up value compared to county assessment value for the year it sold. Unless there is extenuating circumstances, for the properties history, sometimes it will give you a general idea of history % mark up. 

You can also pull the purchase history and tax tickets to the neighboring properties and make sure the neighborhood as a whole is appreciating steadily percentage wise and is not depreciating.

I'm very conservative with numbers. When running my reports I use the county assessment as my low ARV and look at the sold history for my high ARV only ""IF"" the land itself shows a steady appreciation over the last several years.

Hope this helps.  Happy Investing!

Rhonda O

@John Leavelle the place seems to be in good condition. Roof, AC, furnace replaced in last few years. They are using the %1 method to come up with the asking price. Don't even want to counter from $145.

Vacancy is low.

Repairs are low (2 furnaces, 2 ACs, etc = high capex).

Nothing in here about leasing fees which can be substantial especially on a multi-family.

You're banking on the property appreciating faster than expense/rent inflation - why? Real estate has not appreciated historically.

If this is A+ neighborhood it's not the worst deal in the world. If it's C class, I've bought similar numbers for 60-80 even in this ridiculously inflated market.

If you're happy with 1% there are probably better options.

You're paying well above the comps, and I'm not sure why? You make your money when you buy.

Of course, we know nothing about the neighborhood and some other pertinent details.

@Sam B. what do you use for vacancy, maint, and capex? I am still learning what values are good for this.

I am not banking on appreciation. Was not sure what to put in those fields. Mainly just concerned with the cash flow number.

I really did not plan on paying the $175k. I was just posting the numbers with $175k since the seller said they are using the 1% rule to come up with their asking price. I am still learning how to come up with a value for MF's.

Originally posted by @Brian McPheeters :

@Sam Barrow what do you use for vacancy, maint, and capex? I am still learning what values are good for this.

I am not banking on appreciation. Was not sure what to put in those fields. Mainly just concerned with the cash flow number.

I really did not plan on paying the $175k. I was just posting the numbers with $175k since the seller said they are using the 1% rule to come up with their asking price. I am still learning how to come up with a value for MF's.

 I mean it really depends. I do 8-12 for vacancy on a multi due to higher turnover. With one move out every year your leasing fees will add another 5% to your management costs too. 200 is theoretically possible for combined maintenance and capex but probably very optimistic. I have a formula for multis but let's just say 100 for the building plus 100 per unit as a rough number and that's still not super conservative. In my view the 1% rule is for solid B or higher sfh rentals. On duplexes I go for 2-4% but I mostly deal with C to C-. Location is everything though so without knowing where this is I'm just ballparking here.

Based on the comps I'd say other buyers in your market agree. And this is a hot market. 

Originally posted by @Brian McPheeters :

@Sam B. what do you use for vacancy, maint, and capex? I am still learning what values are good for this.

I am not banking on appreciation. Was not sure what to put in those fields. Mainly just concerned with the cash flow number.

I really did not plan on paying the $175k. I was just posting the numbers with $175k since the seller said they are using the 1% rule to come up with their asking price. I am still learning how to come up with a value for MF's.

It surprises me that the Seller admitted that they think an investor will pay asking price because it technically meets a "1% Rule". Feel free to admit back to the Seller that you will not countenance the idea of paying more than usual for the area, which is the "1.3% Rule"!

Of course, investors know that SFRs are not valued by Return On Investment, but solely on sold comps!

And wise investors start with that number, and seek to pay even less, (not more)! Cheers...