Help me analyze this deal: Overpriced Duplex?

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Help me analyze this deal: Overpriced Duplex?

Jocilyn Oler
Investor · Salt Lake City, UT · Member since 2016 · 9 posts · 8 votes

I have the chance to buy a 1986 duplex in Ogden, Utah that has not yet hit the MLS. I would love if someone would give me their opinion on this deal. I know it is overpriced, but it is appealing to me because I live 5 min up the road so maintenance would be super convenient.

Asking price $410K, under contract for $396K. Currently left side is rented with a tenant that has lived there for 5 years. Right side just became vacant. Rent have been $1150, but plan is to increase rent to $1100 with tenants paying all city utilities (~$70/unit/month). The current owner has been paying city utilities for both units (~$135/month for both). Annual property tax: $2000. Water heater and furnace are both less than 10 years old. Air conditioner is over 10 and for expense planning purposes we can expect to replace that within 5 years. 

Total square footage is 1,792 so each unit is 896 sq ft. Each unit has 2 bed, 1 bath, nice sized kitchen and living room. Double carports on each unit with longer driveway so 4 cars could fit on each side with small storage closet at back of carport. Shaded and grass yard. Forced air. The units are in decent shape, but nothing fancy. They could certainly use a remodel to look nicer, but as is they are functional and basic. Basic shed included in backyard.

Thanks in advance with your thoughts on this deal!

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Eric James
Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
5y

Rents are $2200/month total for $396K? That's a horrible deal. 

11Reply
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  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    5y

    @Jocilyn Oler you said it's "under contract" - do you mean you are already under contract to buy it?

    1Reply
  • Jocilyn Oler
    OP
    Investor · Salt Lake City, UT · Member since 2016 · 9 posts · 8 votes
    5y

    @Nicholas L. We just went under contract. The inspection was done today. The roof (two layers of shingles) and at least one of the A/C units will need to be replaced within 3-5 years. Both water heaters and furnaces were replaced in 2016-2017. With those big expenses needed so soon I definitely feel like the unit is overpriced. Any suggestions on what you would consider countering at? The current owner is basically flipping this duplex (he has owned it about two months) so I'm sure he got a good deal. 

    We spoke with the one tenant and found out they just recently upped his rent from $600/month to $1050/month and they are advertising the other currently vacant unit at $1100/month. 

    I'm not sure they will consider a lower price since it has not yet hit the MLS, but I'd like to try and I would like your overall opinion.

    Much appreciated!

    1Reply
  • Eric James
    Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
    5y

    Rents are $2200/month total for $396K? That's a horrible deal. 

    11Reply
  • Nate Jones
    Monson, MA · Member since 2021 · 9 posts · 10 votes
    5y

    I would personally steer clear of this deal. I'm not sure what is so appealing about it other than the location. It looks like you will certainly lose money every month on it. With the numbers you have listed it, it doesn't even come close to the 1% rule or put you at a break even. 

    4Reply
  • Nate Jones
    Monson, MA · Member since 2021 · 9 posts · 10 votes
    5y

    In my area we have properties that cost half as much and will rent for the same amount and I still run the numbers with some skepticism. 

    2Reply
  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    5y

    @Jocilyn Oler as others have said, it doesn't seem like it will cash flow.  But do you have a more complete analysis of the expenses?  And how are you purchasing it - conventional financing with 20-25% down?

    2Reply
  • Jillian KemmererPro Member
    Real Estate Agent · Scranton, PA · Member since 2021 · 55 posts · 25 votes
    5y

    I agree with most of the people here- it doesn’t sound like the rents make up for the cost AT ALL…. :/ 

    1Reply
  • Kim Ann Whittaker
    Member since 2021 · 3 posts · 3 votes
    5y
    Buying a property because it's convenient for maintenance is the wrong motivation. The goal is not to make a bunch of service calls but to create cash flow. Run the numbers. Don't let emotions dictate the interest. Getting something off market is not always a better deal. You can certainly find out what the current paid for the property, what has been invested and why he/she is selling so soon. Red flags all over the place.
    3Reply
  • Ryan Gross
    Rental Property Investor · Ogden, UT · Member since 2018 · 20 posts · 27 votes
    5y

    Hey Jocilyn, 

    My first post got deleted. So here's round 2. 

    A lot of people here are assuming that you are investing strictly for cash flow. Which if that is your goal then this investment will require a huge downpayment to make it feasible. But right now people are investing in Utah for appreciation growth, depending on where at in Ogden your duplex is, this may or may not be a good investment.   

    Overall I wouldn't say you are getting a good deal on the property (keeping in mind that I don't know the neighborhood) but 350-450 is right at market value for a duplex in Weber County. 


    Anyway, I own rentals in Ogden. I'm always looking to connect with other investors! Reach out if you have any questions. 

    Thanks!

    5Reply
  • Nitzan Mosery
    Investor · FL · Member since 2019 · 42 posts · 17 votes
    5y

    first dont get excited just because its close. get excited when the numbers work.

    you need to gather all your information first before making a decision.

    check around the area for rental comps and see what the competition is offering. as far as concessions, upgrades, amenities. Like this you know what you can do with the rents. how much to increase them.

    once you know that, you have to run the actual numbers and see if you can make your new mortgage payment and real estate taxes or not.

    remember that whatever income and expenses the asset has currently, you will inherit. 

    speak to several lenders and get quotes on how much ltv loan you will get and what int rates. 

    now that you know what the current rents are, what your expenses are, what your new mortgage is, new real estate taxes and new insurance cost are, you can run your numbers and see if it makes sense.  now you can see what your going in numbers will look like and then you can see what your numbers will look like after you increase rents.

    make sure to understand all the renovation budget and closing costs you will need and throw those numbers into the mix.

    hope that helps

    3Reply
  • Reggie Powell
    Realtor · Woodland, CA · Member since 2020 · 33 posts · 43 votes
    5y

    @Jocilyn Oler

    Best thing you can do with this “deal” is don’t buy it. Numbers are terrible.

    1Reply
  • Matt Bishop
    Rental Property Investor · Dallas, TX · Member since 2020 · 50 posts · 41 votes
    5y

    @Jocilyn Oler, the price seems about double what the rents say it’s worth. Maybe worth $220K

    1Reply
  • Bill Krayer
    Landrum, SC · Member since 2018 · 17 posts · 11 votes
    5y

    Raising rent from $550 to $1100 in one shot is dubious at best. With big ticket items staring down on you ... I'd forget about it. If it is overpriced, being within 5 minutes should not be compensated with your money up front. I do not know your market but it does not sound like a $400K investment is compensated by $2200, even if you could get that much.

    Fees, points and down payment will get you a mortgage that will cost you $1400 per month. Add in taxes, insurance and maintenance you'd need to be charging more that $2200 to have all your money tied up in this rental.

    Keep looking and never pay more than you calculate based on proximity to the investment. A wiser buy and you'd be able to contract a property management company to mind the store.

    3Reply
  • Jim K.
    Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
    5y

    @Jocilyn Oler

    No, don't buy it. The whole thing stinks.

    1Reply
  • Harmonie Borden
    Homeowner · Salt Lake County, UT · Member since 2020 · 99 posts · 16 votes
    5y

    Hello Jocilyn

    There is a bunch of good advice here and I would take a bit of what everyone is stating with the exception of the few that just simply states not to buy it. No one here really knows your true intentions or situation. Ryan made a good point as I see duplexes on the MLS in the Ogden area on market for less than a week priced over the 500K. Most of Weber, SL, and Utah counties have seen double-digit equity inflationary rates which should continue at least until we see the federal rate hikes. Most counties have also experienced dramatic rental rate inflation as well, so depending on the value that you add for your tenants raising the rents is very possible. I am new to the area but I have been doing a ton of research and as Ryan stated it really depends on exactly where you are looking as there are some great up-and-coming areas in Ogden where they are investing in the infrastructure but there are also areas that less than desirable social-economic conditions. Ultimately run your numbers, if you are new to this you can use the BP calculators to help, do a bit more research on the rental comps in your area, and do what works for you and your situation. As for the comment on requesting a reduction/concessions, if you are already under contract you have nothing to lose to ask all they can say is no. Good luck and I hope it works out.

    1Reply
  • Kodi ClarkPro Member
    Rental Property Investor · Largo, FL · Member since 2021 · 7 posts · 4 votes
    5y

    @Jocilyn Oler - I feel your motivation here.. I am currently looking at duplexes in largo, Fl - my dad lives in this area (and is a general contractor) my focus over the past 7 weeks has been “location” - ideally having something (5) minutes from his home.. I have ran so many numbers and have seen so many duplexes 🤦🏼‍♀️ the numbers just aren’t working .. I don’t see the need to run your numbers as so many have already done so 😜 .. just saying that I understand the motivation .. a big thing to keep in mind is the census data for your area.. duplexes here are running about 350 (sometimes more) I was told not to even blink at a duplex over 300 (given rent for this area) but the biggest thing I learned is that even at $1500 per month in rent (there is already an abundance of units at that rate) and that the real deficient in the area is having units under 800 - is that possible for this area? So far .. not really with what is available.. I’m now currently looking at self builds to meet the deficient (and still stay in the area) I’m going to exhaust my resources here because I know the value in having a job 5 min from home. It’s def about finding the right balance and knowing what will work best for you (your motivation)

    1Reply
  • Scott Bowles
    Real Estate Investor · West Linn, OR · Member since 2017 · 134 posts · 62 votes
    5y

    @Jocilyn Oler Market dictates both price and rent. Notice that everyone telling you to hard pass is not from Utah. I have property out of state that beat the 1% rule where my cashflow is not as good as property I bought in Utah at .75% owning close and self managing both save significant amounts of money. Also the properties I own in Utah have seen significant appreciation which to some extent is luck but nonetheless make any perceived benefit of cashflow seem pretty insignificant. I am not advocating to buy it but market sets the price and Utah has become more expensive so if you want to own in Utah to get the 1% rule you will need to be looking for heavy lift value add type properties. These come with their own set of risks and might not be the best fit for a newer investor anyways. 

    3Reply
  • Luciano A.
    Developer · Houston TX · Member since 2018 · 423 posts · 400 votes
    5y

    @Jocilyn Oler

    Today's market is crazy. I'm SMH as I see people rushing to buy thinking they must get in because prices will keep going up. Not all properties are an investment. I'm sure you have looked at plenty of deals but be patient. If your area doesn't cashflow then be patient or look at areas 1-2 hrs from you. Being near you doesn't make it easier to manage. Sounds like the flipper put some lipstick on the pig and selling for a premium. I would rather buy a property that had the roof, mechanics updated than the interior paint. 
    I have invested before the 2008 crash and was buying after before it became popular again. The writing is on the wall, be patient. IF you keep looking you will find a deal.

    Best of luck 

    2Reply
  • David Avery
    Flipper/Rehabber · Phoenix Arizona · Member since 2020 · 1k+ posts · 686 votes
    5y

    What part of Ogden,  I know the city very well.

    I used to own the Keisel Building and have done hundreds of Flip properties in Ogden.

    Hopefully your above Harrison Blvd?

    That is a nice area of town,  Thinking your rents are low but could raise with some good updates if

    needed.  I know someone there that could assist you in that area if interested.  If it is below Harrison and above Wall Str.   I would be very careful.

    1Reply
  • David Avery
    Flipper/Rehabber · Phoenix Arizona · Member since 2020 · 1k+ posts · 686 votes
    5y

     After reading all the post,   your agent should be able to let you know what the sellers ( investors) paid for it.

    Sounds like it is pretty high priced.   I think you can still back out if your agent is smart.

    ( exit plans).    I bought 4 plexes in that area of wall to Harrison and 20- 36st Street.   all day long in the 90's for $50,000-$60,000.

    Try and walk away .

    0Reply
  • Nancy Roth
    Investor · Washington, Washington D.C. · Member since 2012 · 240 posts · 168 votes
    5y

    I don't see how you cash flow with those numbers.

    1Reply
  • Ron K.
    Professional · Altoona, PA · Member since 2010 · 72 posts · 23 votes
    5y

    PITI will eat up the cashflow. All other expenses will be out of pocket for the foreseeable future. Roof and A/C replacements will be very costly. You will need to keep a drastically higher cash reserve on this property and be prepared to watch is dwindle. Accounting for Roof, AC replacement, vacancies and other maintenance, be prepared for a negative cash flow of $5000-$8000 per year.

    1Reply
  • Zachary Hermanson
    Real Estate Agent · Clear Lake, IA · Member since 2015 · 3 posts · 0 votes
    5y

    There is a ton of value here... Thank you guys so much!

    0Reply
  • Guri Singh
    Member since 2021 · 2 posts · 1 vote
    5y

    Disclaimer: I am a newbie trying to learn the trade. 

    The numbers might work for the long term growth objectives. Obviously, it is not cash flow positive and is probably worth staying away from IMO. 

    1Reply
  • William Hochstedler
    Broker · Logan, UT · Member since 2013 · 1k+ posts · 1k+ votes
    5y

    Is there such thing as a deal in this market?

    The bottom line is that similar properties are selling in days for all cash at this price.  If it get's listed, it will sell for at least what you have it under contract for.  If that's your definition of a good deal--that other people will pay more for it--then it's a good deal.

    Remember that most of the building systems will be at or near the end of their useful life cycle.  You already mentioned the roof.  You might have $25K worth of repairs in the next few years.

    Even that makes it more attractive than many properties that are currently available.

    I'm telling investor clients that it still makes sense to buy real estate if you have a too-much-money problem (which many people do).  But buying for appreciation or cash-flow in Utah is getting less and less interesting by the minute.

    2Reply
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