[Calc Review] Help me analyze this deal...too good to be true?

Question

Hello All.

Looking to see if this is too good to be true. This is a side-by-side duplex, each 3BR 1Bath, with one side vacant and the other about to be. I'm thinking this would be a good opportunity to give it a facelift, get a better tenant in and fetch a better rental rate. Asking price is 110k, and will be making offer of 90k and have included 10k of rehab costs into the total purchase price of 100k in the calc. I'm doing this because I would be using a HML for the purchase price AND the rehab. The plan would be to refinance to a 30yr fixed after I get new tenants in, to get some cash out of the transaction. Current owner lives out of state, and the property was assessed last year for 142k. Any major structural issues aside, this seems like a solid deal.

Thanks in advance!

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Parker Babbe · Answer

@Chris Y. @Jon Crosby I saw the property last week. It is a true duplex, but one side needs to be completely re-done (new sheet rock, appliances, flooring, etc.) as the previous tenant destroyed it. It has already been stripped down, so it likely has sat for so long because it is a substantial project. It is not in a flood zone, as it is up on a hill, although there was some moisture in the basement. The ARV on this property is the big unknown (as it usually is) so I'm going to try to pull comps, and potentially see the property again with a contractor to gauge what the rehab might cost...

Chris Y. · Answer

Hi Parker, looks like a good deal but I would advise checking the insurance cost: is it in a flood zone, that makes a huge difference, also check with a realtor to determine a more accurate market value.  The town assessment might not be reliable. Also, for duplex, I believe you can get a loan of 70% of the ARV, so factor that in your calculations. I am also evaluating some deals and I ran into some similar issues. Good luck!

Parker Babbe · Answer

@Jon Crosby seeing the property next week, will let you know. Somthing must be wrong..

Jon Crosby · Answer

@Parker Babbe

Are you sure this property is a true duplex? I’m only seeing 1 bathroom with the 6 bedrooms?  Would definitely also be cautious as to why it’s been on the market so long.  Keep us posted!

Aaron K. · Answer

Yes it is too good to be true, if it were actually a good deal it would not have sat on the market for almost 2 full years.  I don't know why it is not but it is not.