Why do you think you'll instantly add $50k of value without any improvements? What you pay for the property is, by definition, its value.
On the flip side, why do you think you'll get it $50k below list? Looks like properties in Bradenton are selling for ~98% of list price. Either this property is over priced and you'll get it cheaper or it's priced at FMV and you shouldn't expect much discount.
Regarding your analysis:
- Put in a budget for initial repairs. There's always something.
- Vacancy, repairs and CapEx are a bit low. I use 8% for vacancy and 15% combined for repairs/CapEx.
- Management will be ~10%. Include this even if you plan to self-manage at first.
- Insurance might be a little low. Have you spoken with a local insurance agent?
- Water/sewer looks a little high, but considering the units have washer/dryers, maybe not. You can confirm with the local water department.
- What about lawn care?
- Your interest rate is VERY high. I'm seeing mid 4s for commercial loans. I bet you can get 4% or maybe even better. Call around to all the local banks and credit unions.
You may squeak $100/month out of this place, but I think you should keep looking.
I invest in rentals in Bradenton and am also a real estate agent. I would echo Jaysen's comment. The property is priced a little high, but $50k too high. Unless you know something others don't that would cause the seller to accept an offer of 50k less. Rent assumptions are a little high. You may be able to get it given the proximity to downtown, but I would assume a lower rent just to be cautious.
@Jaysen Medhurst Hi Jaysen, Thank you for the feedback.
The property has a track record of 3 years getting rent at that level (Above $900). It is in a very desirable location. If I was looking at comps for a home that size (2b2b) it would be on the mark for that area. I was not able to find any duplexes that sold in the last 6 months in that area to be able to do an apples to apples comparison.
Also when I check Rent-O-Meter the rents are in the 75% percentile. I walked the property and it has been updated in the past couple of years and it is very clean. Unless something comes out on inspection, I think it would need minimal fixing.
The numbers I used came from the P&L of the current owner who has been renting the property and provided the last 2 years of P&L. Taxes would be the only thing that will probably come out higher.
The loan rates I am using is because I would have to use an investment product that uses rent as the means to support loan. With me switching to Real Estate Full Time, I do not have the 2 years of 1099s to support standard loans even though my income was very high over the past 5 years.
To me the property is overpriced, because the level of rent does not support the $235K asking price. If I use the 2% Rule, at $185K I would only be at 1.07% which is not a bargain, but I could live with that. The COC Return would be close to 10%. On the 50% Rule I come up with a little less than $200/month.
So my thought on putting this deal together was, what is the price that would make sense for me to move forward if not walk away.
Based on the above information, is this a deal you would take?
Thank you for your feedback and advise. It was very helpful and it gave me a couple of other things to think about.
So, the big question for me was this. In order for the deal to work for me, I would need to have a certain return. At the current price, assuming fair market value I would not be
@Juan Nieto Hi Juan, Thank you for your feedback. Please check out my response to Jaysen and let me know your thoughts.
No, @Jose L Torres , I would not do this deal. It doesn't meet my personal criteria ($150-200/unit/month cash flow and CoC ROI in the mid teens or better). Of course, those are my criteria, not yours.
Running some quick numbers, I wouldn't consider this unless the price was around $125k, which obviously isn't going to happen. Duplexes are tough. The numbers rarely work out.
Thank you @Jaysen Medhurst ! This was really helpful.
I’ll throw some thoughts into the pot:
Rent estimate high.
Without knowing property specifics, $117k unit is in line, if not low for current owner expectations.
I base these thoughts on my owning/operating a residential property mgt company that manages throughout Manatee, Sarasota, and Charlotte counties.
Hey @Jose L Torres ,
I agree with pretty much everyone else in the post. I have ran the numbers on this deal myself when it came on the market and it was just to slim of a deal to be apart of(at least for me). It would be really cool if we could add a bedroom to force the rents higher but that`s not going to happen with this one, at least without some money. Anyway I would say there are better deals out there that you can deploy your capital.
@Joshua Rountree Thank you Joshua! A week or so ago, I heard they had an offer on the table. I was willing to go $185K and they told me it was not close to what was offered on the property. So looking for my next best deal.