How BiggerPockets helped me say NO.

I was not alive during the Reagan administration, but it was the first thing I thought of when I was thinking of a title for this post. First, a little backstory:

If you look at my previous posts or blog history, you'll know that I owner occupy a duplex at the moment. I had been a frequenter on BP for awhile before going into this deal, so I sort of knew what I was doing, and learned a lot about finding deals through the BP podcast, especially with relationships and word of mouth. 

The closing of my duplex was a pretty tense situation, as the owner was not happy at all the roadblocks that came up, and frankly did not want to sell the house in the first place. As I'm signing my soul away, the title agent makes a comment that she also owned a duplex and wanted to get rid of it soon. Wow, it really does happen in real life, I thought to myself. After the dust settles, maybe I'll pursue that lead.

A few months go by and I finally get the courage to e-mail her and ask about the property. Yes, shes willing to sell and sent me an asking price. Luckily I had just become a BP Pro member and had access to unlimited use of the rental property calculator. Time to do some research. 

Here are the things that I needed to find out and how I did them:

Property Taxes

Used google to find the city's tax assessment website, for example, "Ann Arbor tax assessment". Usually this get's me what I'm looking for, Sometimes, the property is actually listed on a township website (often times with a same name as the city), so this can get a little tricky and can require some digging. 

Rents

I asked the seller if the units were currently occupied and what the rents were. Both were occupied and she gave me the numbers. I compared these on sites like rentometer and padmapper and determined that they were a bit lower than the market rents, but I'll run my analysis either way. 

Insurance 

I based my estimate of insurance on how much I'm currently paying. Could be more or less, but it was a good conservative ball park estimate. 

Other Estimates
The first real estate book I read was Big Profits from Small Properties, it was the first thing that opened my eyes to the other expenses like Cap Ex, Vacancy, Maintenance, and Property Management (even though I manage myself for now). I use 8% for all of those values. This is not based on my experience, but from what I have learned through reading. You can use your own numbers that work best for you! I also estimate $40/mo per unit for water and $100 per unit for electricity (if not tenant paid),

The Bottom Line

I plugged my numbers into the calculator and waited for the results. What I saw astounded me. I knew it was probably a bad deal, but didn't realize it was that bad.

Negative 600%!?!?! Woah. At this point, I didn't want to touch the property with a ten foot pole. 

From the cities tax assessment website the previous purchase price is also available.  I ran the numbers with the numbers that she bought the property for and it was still not good. At this point, I had to walk. 

If I had not had the experience or the knowledge of what the actual expenses are when purchasing a property, I could have made a huge mistake, but thanks to BP and all the resources I found on here, I'm safely still in the game!