Possible first deal! What'd'ya Think?

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Michael Garrett · Answer

Wow! Thanks Richie! That is some amazing advice. It's obvious I need to work on my analyzing skills that's for sure. All great questions. Drive by compared to MLS photos were drastically different. States a new roof but I'm pretty suspect. Possible section 8 housing too.

I did notice the recent sale, Octavio, and have a note to fond out more about that. Thank you both for the advice. Good stuff. Not sure I’ll pull the trigger as I sense a few red flags unless a BRRRR makes sense.

Richie Thomas · Answer

@Michael Garrett I'd imagine you could verify how new the roof is by going to the county permit website and seeing if a contractor had applied for a construction permit for that.  I'd imagine they'd be required to do so, and if no permit application exists, that implies either the work wasn't done, or it was done so in an un-permitted fashion (either of which would be a huge red flag, as you mentioned).

Good luck!

Octavio Quinones · Answer

Online, it shows that the property has been bought and sold quite often. Most recently just a few months ago for 208k? I would be extra careful to do my due diligence on this on one.. P.s I was just going by information posted on Realtor.com, not the directly from MLS. Good luck!

Richie Thomas · Answer

Hey Michael, welcome to the forum.  Here's some thoughts I had on your report about the property:

-I see from the report title that this is a duplex.  And based on the projected income, I'm guessing you're planning to rent out both units (as opposed to house-hack in one and rent out the other).  Is that correct?

I plugged the property address into Rentometer.com, looks like your income estimate might even be a bit low!  Check it out:

It might make sense to bump up your income projections to take this into account, since $2,100 for two 2-bedroom units seems artificially low for this area.  On the other hand, the asking price for this property is currently $215,000, so you may also need to bump up your purchase price.

-Are one or both units in the duplex already rented?  Or will you have to find tenants?  If you'll have to find tenants, will you manage that yourself or delegate it to the property manager you've budgeted for?  if the tenants are already in place and paying the rent you mentioned in your income projections, you may want to consider a cash-for-keys deal so you can raise the rent to market rate.

-If this is a non-owner-occupant property, how are you getting an interest rate of 4.5%?  Is that through a local community bank or similar?

-It might make sense to budget more than $2,000 for repair costs, even if the property looks pristine both inside and out.  If you budget more and you end up spending less, you can always be pleasantly surprised.

-I like your budget for closing costs.  That seems like a conservative estimate, from what I've read and heard.

-I don't see a budget for utilities, garbage, etc.  Are these separately-metered and you're planning to bill these all to the tenant(s)?

-Homeowners' insurance is a very hyper-local line item on a budget like this (i.e. highly dependent on one's local situation), so I did a quick Google search on average rates in the Boynton Beach area.  I found this site, which I can't vouch for, but it says insurance in that area ranges from $85-$111/month.  So your budget of $200/month might be overly conservative.

-I see the property was built in 1967.  When were the last repairs done to the roof, foundation, internals (electrical, plumbing, HVAC, etc.)?  If it's an old property (i.e. more than 20-25 years) and/or if you don't have the information on that 2nd question, it may be prudent to budget more than 12% for combined CapEx/Repairs.

-Looks like vacancy in Palm Beach County has been going up lately, thanks to a boom in rental construction.  The vacancy rates that I've seen range from 7.8% to 10%, depending on the source.  Since a single unexpected month of vacancy can severely impact your profitability, you may want to budget higher than 6% in this case.

Best of luck, keep us posted on how this project goes. :-)

Possible first deal! What'd'ya Think?

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