First deal (duplex), looks good I think - thoughts?

14 Replies

Just viewed this property today, seems like it could be a good first investment property.

The property is currently unoccupied, advertised as 1295/unit, I used 1200 to hedge a little.  It is listed for sale at 199k, I used 190k, on market 60 days.  Property is in great shape overall, easily move-in condition.  I'm told that there's a housing shortage in NH and the overall statewide vacancy rate is less the 1%, and this place should rent easily.  Heat, water and sewer included.  No foreseeable capital expenses in the near future, it's really a nice property.

The (maybe) bad: the town it's in has gotten a pretty bad rep for awhile, although things appear to be turning around.  Certain areas are on the up and up, this property is in a better residential area, and you can see there's improvement happening in the downtown nearby, with more planned in the next couple years.  Rents have been on the rise, but 1200 (never mind 1295) would definitely be close to top dollar here.

What makes the numbers most workable is to self-manage, which is where I'm hesitant...I always foresaw paying a management company, but that dips too far into the monthly cash flow to make it viable.

Any thoughts? Maybe it'd be worth this property to learn how to be a landlord?



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Walk away.  Everything you have mentioned negative should tell you this isn't a good deal.  You're rationalizing (see:  emotional decision) this into a good deal.

You said there's a rental shortage, and the property should rent right away...but it's been on the market for 30+ days.  That's not renting fast.

You said the town gets a pretty bad rep, but it's up and coming...etc...Here, you're banking on the future where the track record is working against it.

Biggest mistake you are making is trying to base your "positives" on averages for an entire State.  You can't do that.  In your post you state that this area isn't as good as the average in the State.  That means this micro-market (the only area that matters) is a bad place to invest.

Walk, no check that, RUN away before your emotions override the logic, and you rationalize yourself right into a bad deal.

Hey @Audrius Pauliukonis -  Congrats on starting your investment journey!  You are definitely on a good path here.  Getting out there and seeing properties and taking the time to analyze them can be half the battle and much of the work.  Although the anticipated cashflow seems tempting, and without having all the details, I have to lean towards Joe's opinion here as well for a few reasons: 1) You should be factoring in property management fees.  Whether you pay this to a manager or to yourself, it is going to take your time, gas money, effort, etc to manage this place.  Given the location, are there even reputable property managers available if you ever needed them to take over? 2) How familiar are you with the Lakes Region? It can be very seasonal, and it seems you are generalizing quite a bit about the area (using language like "I'm told" and "should be")  I would lean on the local knowledge of your Realtor as well as your own formal research to help you get a clearer picture of local happenings.  In general, yes, NH is a great place to be with a very low vacancy rate, however remember that these statements are most applicable to the three major cities and their surrounding towns 3) I'm going to assume they left this unit vacant while the property was on the market for ease of showing, but that is something you'll want to confirm. Otherwise, your hunch that $1275/mo is to high will be spot on, and trying to fill this place with a quality tenant over the winter months may prove to be quite difficult.

Hi @Audrius Pauliukonis  , I'm curious as to what Town you're in. I wouldn't think it would be hard to find renters in the lakes region. The fact that it's vacant is great for buying, much better than inheriting tenants. You might have to be patient and wait a bit for good tenants, but ask @Chris R. who just did a rehab on a 3 family in a Town pretty near to the lakes region that hasn't always been known for the greatest location, he has great tenants at great rates, just had to be patient and wait for some good ones to come along. 

Nothing about this deal really excites me.

You're paying $47,500 out of pocket to buy yourself a job as a PM and stringing the note out for 30 years. Some folks do that as large apartment managers because the overall cash flow is substantial and there is tremendous potential upside for forced equity as rents rise and you find cheaper ways to manage the operating costs. But for a duplex it gets kind of depressing self-managing after 5 years and netting only a few thousand per year for your troubles.

Growth/expansion is another concern. If this property is ready to go as is and already renting close to the top rent for the area, there's no where to go as far as increasing value, which means the only way you refi and get your money back to do the next deal is thru waiting for values to increase naturally along with the market since your loan amortization will be inconsequential the first 5 years or so.

What do you want to do?  What has you excited about this deal?  "It's my first deal" doesn't count....

I always tell new investors, if you're looking for a job, you can get a free one at McDonalds. If you want an investment, plan to pay a property manager (which could be you if you self manage).

Based on the limited info you provided, I'm guessing Franklin. I don't have a huge presence in that market right now, but just from looking at the property (that I guessed to be the one you viewed), I'd say 1295 is very generous. Have your agent help you with a rental market analysis, but you might be way off.

Also, it was previously listed as entry-only and didn't sell. Looks like it has been on for 90 days. I'm guessing that given the time on the market, and given the season, that Kathryn, the owner, will be more willing to work something out. Also, considering she bought the place for 50k in 2013 and no one has registered a mortgage since then, I'm guessing there's lots of equity to play with.

Anyway, hopefully I guessed the right property.  If so, talk to your agent about options that actually work with the numbers.  And don't forget to thoroughly check out the area.  I personally wouldn't classify Franklin as "up and coming", but there are still people that live there, so you might find a good investment.  If you do proceed, budget more than you think for management and renovations, because you might need it.  And watch for drugs with any new tenants.  Good luck!

Thanks very much for all the feedback, I do appreciate the time you all took to look this over for me.

@Joe Villeneuve I do know what you mean, while I do think this property does have it's good points, I'm trying to not get attached to any property - I've seen a few so far where my only emotion was run away, haha.  You hear and read so much about the benefits of buying in a transitional area, it's hard to know where to draw the line between acceptable and not, especially when you're doing this for the first time.

@Jessica Stevenson Good advice on factoring in some management fees even if self-managing.  Ideally I do want to find a property that should flow some cash while I can have a management company oversee things...I really don't need another job, but if I take on some of that, makes sense to factor in some compensation.  I'm pretty familiar with the lakes region, I live in New Hampton (near Meredith and Laconia) and have been here 10 years, and in NH most of my life (grew up near the seacoast).  Not since I bought my house 10 years ago have I really been looking at areas from a real-estate perspective, though.  The selling realtor did mention that the owner left the place vacant for now while showing the property as it makes it easier to show, and said places like these "rent all day long" in the area.  She and my realtor were chatting a bit about what high rents some people are asking in town, and were getting them...but there's still low rent, bad streets in town too.

@Tucker McCarthy the property is in Franklin.  It's interesting you mention the positives that it's vacant - I think I've been almost looking for a place already rented to decent people as that means it will actually rent!  Never having done this before, it's like what if I buy it and can't rent it?  I'll send Chris R a message, it would be good to touch base with someone with experience in this region for sure.

@Erik W. I understand what you mean. I'm definitely excited to acquire my first property, have it flow some cash and hopefully not be a total turkey. But the more I've been thinking about it, this is tying up most of my available cash and then I've got a lot of time on my hands to save more money to do it again...I'm starting to think something like a SF BRRRR might be a better way to get started, though I haven't as yet been looking in that direction til very recently. But the thought is definitely more exciting than jumping right into a top of the market property to sit on, with not much cash left, so real means of keeping any momentum going.

@Matthew Dennehy Yes, that's the place.  Franklin wasn't the first area I was hoping to buy in, it does have a bad rep overall, but the area near the downtown has definitely seen improvement...looks like they're putting in walking trails down by the river, a "white water park" of some sort near there as well, and there are nice looking rehabbed properties around in some places.  But up-and-coming might be too strong a term at this point, there's definitely some rough streets.  I'm still learning; until a couple weeks ago all I ever did was drive through there once or twice a year on my way to someplace else.  The realtor I've been working with is from the area it turns out, and she was showing me places to avoid, and some nicer neighborhoods as well.  To me it's the risk of buying in a "transitional" area and how is that transition going to work out?

I've learned a lot from investing over the last 20+ years: 

  • There is a reason that towns get a bad rep, and that is the tenant base.  Franklin has a tough tenant base.  Tough tenants cost a lot more than good tenants.
  • When the economy cycles, the tough towns are the last ones to rent.
  • Don't look at advertised rents when the property isn't rented at that amount.  Do your own research.  Franklin specific advice has already been provided relating to the upper end of the rents.
  • Tough tenants open the windows in the winter and crank up the heat at the same time
  • Separating the utilities is a good value add, but may not work if the market won't support it, as tenants will avoid your units if they don't want to be responsible for their own actions.

These are just some of my lessons learned over the last 25 years.  I would not consider buying a property in Franklin at this price.  The experienced investors in NH won't pay anywhere near that for a property in Franklin.  If you buy it, you will become experienced, but the experience won't be a good one. 

Originally posted by @Audrius Pauliukonis :

Thanks very much for all the feedback, I do appreciate the time you all took to look this over for me.

@Joe Villeneuve I do know what you mean, while I do think this property does have it's good points, I'm trying to not get attached to any property - I've seen a few so far where my only emotion was run away, haha.  You hear and read so much about the benefits of buying in a transitional area, it's hard to know where to draw the line between acceptable and not, especially when you're doing this for the first time.

@Jessica Stevenson Good advice on factoring in some management fees even if self-managing.  Ideally I do want to find a property that should flow some cash while I can have a management company oversee things...I really don't need another job, but if I take on some of that, makes sense to factor in some compensation.  I'm pretty familiar with the lakes region, I live in New Hampton (near Meredith and Laconia) and have been here 10 years, and in NH most of my life (grew up near the seacoast).  Not since I bought my house 10 years ago have I really been looking at areas from a real-estate perspective, though.  The selling realtor did mention that the owner left the place vacant for now while showing the property as it makes it easier to show, and said places like these "rent all day long" in the area.  She and my realtor were chatting a bit about what high rents some people are asking in town, and were getting them...but there's still low rent, bad streets in town too.

@Tucker McCarthy the property is in Franklin.  It's interesting you mention the positives that it's vacant - I think I've been almost looking for a place already rented to decent people as that means it will actually rent!  Never having done this before, it's like what if I buy it and can't rent it?  I'll send Chris R a message, it would be good to touch base with someone with experience in this region for sure.

@Erik W. I understand what you mean. I'm definitely excited to acquire my first property, have it flow some cash and hopefully not be a total turkey. But the more I've been thinking about it, this is tying up most of my available cash and then I've got a lot of time on my hands to save more money to do it again...I'm starting to think something like a SF BRRRR might be a better way to get started, though I haven't as yet been looking in that direction til very recently. But the thought is definitely more exciting than jumping right into a top of the market property to sit on, with not much cash left, so real means of keeping any momentum going.

@Matthew Dennehy Yes, that's the place.  Franklin wasn't the first area I was hoping to buy in, it does have a bad rep overall, but the area near the downtown has definitely seen improvement...looks like they're putting in walking trails down by the river, a "white water park" of some sort near there as well, and there are nice looking rehabbed properties around in some places.  But up-and-coming might be too strong a term at this point, there's definitely some rough streets.  I'm still learning; until a couple weeks ago all I ever did was drive through there once or twice a year on my way to someplace else.  The realtor I've been working with is from the area it turns out, and she was showing me places to avoid, and some nicer neighborhoods as well.  To me it's the risk of buying in a "transitional" area and how is that transition going to work out?

You draw the line where the $$$ goes negative.  Poor cash flow, even if positive, might just as well be negative

 

The two biggest negatives I see is an area that will not attract a quality tenant base no matter how nice your apartments are and the fact that the owner is paying for heat. Both are big risks and present unknowns that I think makes this deal not worth pursuing. 

@Audrius Pauliukonis

All of the advice you have received has been solid. Allow me to expound on a few as a current owner of a duplex in Franklin:

-Management: It's fine if you want to self-manage. It will give you experience and allow you to realize a better cash flow. However, that choice should be made for those reasons, not to make a bad deal pass muster. In other words, you should self manage so that you make more money, not so that the seller of the property gets to because you used self-managing as a way to justify overpaying.

-Rent/Occupancy: Left vacant for showings? Then why is it listed for rent? Do a Craigslist rent CMA. I think even $1,200 is possibly pushing it. Maybe not with utilities included, but it's been listed for 5 weeks. That's well beyond the time it takes to indicate that the rent is too high or the property needs improvement (of course it's a sliding scale and the 2 are interdependent).

-Location: Great to hear someone say that Franklin is showing signs of progress. We have the duplex there and another in neighboring Northfield. I wouldn't consider myself a market "expert" in Franklin. However, anecdotally, when renovating our duplex there, one of our employees who grew up in neighboring Andover made a comment that we bought in a good neighborhood, and to make sure not to touch anything on the Bow St. side of Central; which is definitely where your prospective property is located. Is Park St. east enough of Bow to be okay, or do the drug issues reach there too? That I do not know.

Anyway, I wouldn't touch that property unless I walked the neighborhood at 1am and no one offered to sell me H or meth, the seller provided me with a stack of good rental apps generated from the current lease listing (or good tenants already in place), and the price was lower. Well, I guess I wouldn't anyway because I don't do included utilities on duplexes.

If you're interested in a Franklin duplex, I can offer ours at a much better price than Park St. It appraised this fall for $191,000 but we'd take a good bit under that. It's at Orchard/Elm and in much better condition than your prospect. Both units are 2br/1bth, side-by-side, separate driveways. Tenants pay heat & electric and take care of snow and lawn. Both tenants work full-time and have never missed rent. Tenant 1 is at $900 since April 2017. Tenant 2 at $1,000 since May 2018. Both are probably due for a rent bump this spring depending what the comps say, but I believe in keeping rents $50 under market to attract and retain high-quality, long-term tenants; so I wouldn't bump them up more than $75-100 max. W/S was $1,289.43 last year. Insurance $764.00. RE Taxes are currently $4,489.51, and apparently due for an abatement; especially after seeing the tax card on your Park St. prospect assessed at 48% what ours is ($96,300/$199,800). No doubt our property is worth more, but if that's not ammo for an abatement, I don't know what is. As far as other expenses, those are up to you for pro forma assumptions for R&M and CapEx, but I'm not sure why you have garbage in there; Franklin has *free* curbside service, at least at this location ("free" as in already paid for through our RE taxes).

We also have the one in Northfield that we'd be willing to sell. It's a 3/2 house with a 2/1 above the garage, so a bit different than the typical duplex, but the same in regards to tenant utility and maintenance responsibility. However, it's worth a good deal more, and would probably be more ideal for a house-hacker who wants the in-law apt to subsidize their housing expense.

Feel free to reach out if you'd like to talk further about these, or just in general about investing in NH. Happy to help where I can.

Happy investing,

Troy

Again, thanks to everyone who commented, especially for the area-specific info @Ann Bellamy and @Troy Zsofka .  It's been super helpful to get feedback like this - even though I'm sure there are good and bad tenants in any market, with regard to Ann's point about gaining "experience", of course I'd really like to minimize the risk of that sort of experience!  I'm certainly seeing the truth in the statement that 99% of deals aren't good deals, for one reason or another, even if they may seem so on the surface.  

I think for now I'm going to go back to the drawing board and re-evaluate my approach. I'm bound and determined to get the ball rolling with a property, ideally within the next couple months, just want to do what I can to start out with the best chance of success.  

As a side note, Ann, I really enjoyed and got a lot out of your hard money discussion with the NHREI mastermind group in Derry a week or so ago!

Thanks again,

Audi

I found it interesting to here you describe Franklin as up and coming. I struggle to describe parts of Manchester as up and coming and geographically Manchester is a whole lot closer to more opportunities than Franklin.

You have to keep in mind Franklin got the nickname Skankland for a reason and to change people’s mind will take decades just look at Manchester. It has taken +30 years to develop Manchester from a deserted Milltown to something with a moderately desirable economic engine behind it. At $100k per unit your paying Manchester market rate prices 40 miles north. With all that said personally I’d pass and let the next guy take a chance at those numbers.

@J Tessier I know what you mean, but being new to this, I'm still figuring this out - which is why being able to put up a report on this forum is such a great opportunity, to get honest and realistic feedback from people who know a LOT more than me before making the big commitment!

I don't think even I'd describe Franklin as "up and coming", but there are signs of life down there that weren't there a few years back, which was surprising (to me) and nice to see. I've heard the talk about Franklin, but never before through the lens of a potential investor's perspective...still trying to figure out what areas in the state offer good opportunities for a green investor like me...not that there's no opportunity there, but the consensus seems to be that Franklin might not be the best place to start off my REI endeavors, haha. But, now I know more about it going forward.

I appreciate the thoughts on a town's development timeline, to get a sense of it over time, and to take that into account.  I remember what the mills were like in Manchester back in the late 80s when I was a kid, things look different today for sure, but it took awhile.  Lived in Boston's South End for a year in 2000, and that development was happening on a much faster scale...