[Calc Review] Need Help in Analyzing Out of Area Triplex Deal

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*This link comes directly from our calculators, based on information input by the member who posted.

(Sorry for the repost for those who saw but the initial one had a broken link)

I have been looking for my 1st rental property. I am been looking at duplexes, triplexes and fourplexes. I live in way in Humboldt County in Northern CA and there are limited MF options. Running the preliminary numbers rent doesn't even pay PI. So I opened up my search to outside of my area 3 hours South of where I live. I found Duplex with a cottage on the property. The cottage looks like it needs work and the duplex is upgraded but has some finishing work as well.

The purchase price is $225K but with work needing to be done and the cottage needing work there seems like room to negotiate down so I used $210K for the purchase price which brings COC to a little over 12% and $600/month in cash flow.

I reached out to get more information on realtor.com where it was listed and was obviously contacted by realtors and lenders. Which is great because this coming week I am going to get pre qualified. My question is what steps do I go through to vet these deals I find and initially run, decide on a city/neighborhood.

It is exciting to be finding deals in what I am looking for but I just want to make sure the process is right for nailing down numbers and info. I want to take action but in a educated and well informed manner. I appreciate your time and input.

-Taylor

@Taylor Knott Regarding your question of deciding on a city/neighborhood to invest in, a good question to ask yourself is what's your long-term plan? How certain are you on the 3k closing and 10k rehab costs? Which city are you looking in?

I'm assuming you're wanting to do long term buy and hold from your post. As far as a city and neighborhood to invest in, some of the best properties to buy for quality tenants over time are located in good school districts and close to hospitals/medical centers. Your property will have less vacancy if it's in a good school district compared to a property a couple of blocks away in a poor school district. Another good thing to do is to check the demand for rentals in the area. 

If you're close to a hospital or medical center, then you'll always have a pool of working professionals as possible tenants to choose from. Get as familiar with the area you're considering as possible. Network with people who invest in that area on BP or go to a meetup in that area. You'll want to physically go there and ask other investors with experience in that area.

The town I'm looking into is Lakeport, CA. I began looking in Humboldt County in Eurkea, CA and did not find any deals. So I broadened my search up. I am fairly familiar with this part of Northern CA since I grew up and have gone to college in this area. As far as the closing cost and rehab numbers honestly a broad guess. The listing said it still needed some final repairs for a hands on investor so I aimed on the higher side especially not knowing the condition of the cottage or what may be uncovered during an inspection. 

Yes my intention is long term buy and hold in areas that are relatively close to me to start with my first rentals. In 2-3 years my fiance and I will most likely relocate. I am going to go down there this weekend to get shown the house and drive around the town and area. How do you go about looking at rental demands for a given town or county?

Very focused on obtaining my first rental but I definitely want to make sure I do all my due diligence.

Hey Taylor,

Commonly, the landlord is stuck paying for water and garbage, and in some cases even electricity. I think your garbage estimation is pretty low, you can call local waste management companies and get a quick estimate on costs. You can also call the local water facility and ask for a yearly estimate of water costs for the specific address. I recommend doing that and then factoring that water cost into your analysis. Unless you already contacted the current landlord and confirmed that they only pay for garbage.

Sincerely, Lucas Duce

@Lucas Duce the garbage rates in the area are actually quite low. For the smaller cans for 3 Units would be $50.21/month and the next size up would be $70/month. As far as paying for other utilities I have always paid my own electric and water. I imagine this depends per market and what is attractive for renters or what is feasible for landlords. With MFH I assume it depends on if the units are all separately metered. 

Upon doing some digging of the town I found lakeport is a tourist destination with the lake, resorts and casinos projected flat economic growth over the coming years, a population that has decreased a hair but remained relatively flat, the crime rate index is well over national average and has increased over the past 10 years even with increased spending for public safety. I also dug into the the property to find that it is in a flood zone and requires flood insurance. 

Based on the above I wouldn't invest in Lakeport and specifically with the property after finding out that it is in a flood zone.   

I'm not sure what people consider important/make it or break it indicators for a city. Do people invest in areas with the above factors I laid out? Or would it depend more on a neighborhood basis?

Again thank you for all the valuable time and input!