Ready to pull trigger on first deal- would appreciate feedback

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Ready to pull trigger on first deal- would appreciate feedback

Steve Kim
Rental Property Investor · North Texas · Member since 2014 · 13 posts · 16 votes

Hi BP!

I currently have one rental property (primary residence turned rental) and this will be my true investment property purchase and wanted to make sure I'm on the right track.

Anyway, my agent who is also a builder/investor is selling his 3 years old duplex (1450 sq ft, 3bd/2ba per unit) , built ground up with all new/relatively high end amenities (tiled bath, quartz tops, custom kitchen, laminate everywhere). 
This is in north Texas so cash flow is typically weaker than other regions. 

Here are the numbers:

Purchase price: $300K
Closing: $5K
Down (20%): $60K
Rental Income: $1250 per unit ($2500 total)/ mo

Monthly Expenses:
Management: $250
Maintenance/CAPEX: $250
Vacancy:$125
Insurance:$100
Tax: $400
Total: $1125

Debt Service: $1030

Monthly Cash Flow: $345
NOI: $16,500
Cash on Cash: 6.4%
CAP: 5.5%

There are no comps for a new duplex so I've analyzed a few single family homes with similar square footage (1300 to 1600 sq ft range) and most of them perform at around same or slightly lower CAP and CoC rates.

I know the numbers aren't too strong but I believe that I can consistently get high quality tenants and can easily utilize one of the units as a short term rental because of the nice finishes.  Also this is the perfect house hack duplex for other buyers in the future (My wife refuses to house hack so no go for me)


Any input/feedback would be greatly appreciated!

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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
5y

Here's what you have.  A property that cash flow $4140/year and a cost to you of $65k (DP = C.C.).  That means it will take you 15 and a half years, assuming no problems that add more out of pocket costs to you, before you recover your cash...and start making a profit.  That's a looooong time to break even.

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  • Sebastian MarroquinPro Member
    Real Estate Agent · Pasadena, CA · Member since 2015 · 476 posts · 263 votes
    5y

    @Zachary Beach

    @Sebastian Marroquin people don't only sell bad investments. I'm in escrow currently selling a single family home in Southern California that after management is a 10 cap rate. In an appreciating market I believe in. I'm selling because of the velocity of money. I have made over 300% on my money in 13 months after tax. If I leave the money in the property I could keep 30%+ IRR with 0% appreciation but I know I can get 100% plus if I move it. I'm also a full time active not passive investor so that changes things.

    :) Zach I never said people "always" or "only" sell bad investments : I said this is a red flag for me and needs further assessment and due diligence. 

    If the Realtor/ owner put the property on the market and there were other buyers/ investors willing and wanting to purchase it, then this would be a different conversation. 

    The Realtor will protect his own interest in the property (hopefully his buyer that posted on here also), but remains to be seen. 

    To your example: I bet you sold your investment in accordance to comparable properties that were selling on the open market. 

    I have yet to see an investor that leaves equity in the property for someone else's gain just because they are nice... doesn't happen. And I don't expected bc this owner/ realtor also took the initial risk to build the units. 

    All I was saying was that the property (bc of how it was coming to him and who was selling it to him) needed further assessing and due diligence. 

    If he is selling the asset for $300k , i bet he is all in about $200k (just a guess) and a good deal would be: if similar comps are selling for $300k but bc of the relationship and not having to pay commissions to sell: he sold it to this buyer for $250k as an example... 

    But that will rarely happen, right? 

    Furthermore, I was saying that he could probably find a better property (better has many forms... ) 

    And even, He could ask the builder/ realtor to help him build other units: where the buyer (in this post) pays for all of the buildout costs + the builder makes a profit/ margin in the buildout plus purchase commission and the client ends up with a better deal. (just an option and food for thought). 

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  • Anthony Angotti
    Real Estate Agent · Pittsburgh, PA · Member since 2015 · 1k+ posts · 846 votes
    5y

    @Steve Kim

    For a brand new property basically this looks good.

    0Reply
  • Chris Thomas
    Rental Property Investor · Central Kentucky · Member since 2019 · 67 posts · 43 votes
    5y

    I don't like this one bit. The return is weak compared to other modes of investment. Call me crazy but the real money seems to be on the property development side of things right now. May not last though...

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