Duplex or Quadplex Potential Deal

5 Replies

Hi all,

First post...I think. Anyway, I found an off-market deal from a seller locally and ran it through the calculators. I can comment or post them if it would be helpful but I wanted to get input. The seller said it could be sold as just one of the duplexes or both. They are all 2 bed 1 bath. I would guess the building hasn't seen any updates in 20 years. Seller claims to have replaced both water heaters within the last 3 years, but I am hesitant to believe him, and am factoring in replacing all four water heaters. It has baseboard heating, so no furnace, no issues there, seemed to be working fine when I was in one of the units (obviously will want a discount or have the ability to access all four units). Tenants cover all utilities. Building was built in the 80's and electrical checks out. The roof is cedar shake shingles that seem warn out.

Asking Price: 260K; Current Rents: $650/unit/mo; Est. Mkt Rents: $750/unit/mo; Est. Rehab: 0-40k (depending on desire to update interior); Taxes: 775/duplex (avg); Insurance: 4k/year; Vacancy: 3%; Mgmt: 10%; CapEx: 8%; R&M: 5%

Based on my analysis seems like a flub at ask, but I am curious as to what others think. The best number I came to was roughly 130-140k. I don't want to insult the seller, but they are asking FMV of fixed up comps in the area.

Am I missing something here? This is the best I've seen in over a year, but I'm still nowhere near comfortable with these numbers. Any advice on talking to the seller?


Thanks

@Carl Edelman I'm assuming it's $260k for all 4-units. At $260k it meets the 1% rule, so it's not a horrible asking price. You need to better understand your rehab estimate. $0-40k is a wide range. I would suggest you underwrite the deal assuming you will need $40k. I don't know your market but taxes seem very low and insurance seems a bit high.

Pull 2-3 comps and explain to the seller those properties have all had recent updates. I would list your top 3-5 things (e.g. roof, water heaters, electrical, etc.) and say you've spoken to a contractor and you estimate $40k+ in repairs. 

It's off-market so that means you have less competition. I'd start the asking low and see how far the seller will come down. Make sure you know you absolute max offer price before you start negotiating. 

@Jon Kelly thank you for the informative response. Taxes are right from the assessors website, and insurance is where they get us here because of the frequent hail damage. The estimate is so wide because if I don't update it, I can probably keep renting at 650, but then I'm just delaying costs that (IMO) should be front-loaded so as to minimize CapEx in the foreseeable future. I will try and pull some comps and take him for lunch or something and see if he has some support for his ask.

I appreciate the help. I don't want to get a realtor to add (again, IMO) unnecessary costs to the transaction. We do plenty of real property/ secured transaction work, so I don't think a realtor would add much, if any, value.