Duplex purchase advice-- would you take this deal?

Question

Feedback welcome on this:

Price $91,725

Units: 2

Rents: $1425

Taxes: $1496

Insurance: $731/annual

Type: Attached duplex, brick construction

Class C to D neighborhood

Finance: 25% Downpayment, $22,931. Loan, $68,794.

Mortgage Interest rate 4.75%

Escrowed Paymemt: $544.

Inspection: $450

Management: $145

Repairs: $150

Cap Expenses: $125

NOI: $461/monthly.  $5532/annually

Do you need any more information?

Would you take this deal?

Thanks for your comments and thoughts!

Chris

Christopher J Lemmon · Answer

BP investors,

I revised my numbers after talking with my management company on repairs, vacancy, and cap ex.

All numbers below are going to be shown as monthly. This is not a hypothetical deal.

Duplex Price = $90,725

Rents = $1425

Taxes = $125

Insurance = $69

Management = $150

Repairs = $50

Cap Ex = $125

Vacancy = $128

Debt Service = $355

NOI = $906

Profit after Debt Service = $551

Per unit profit after Debt service = $275

No utilities are paid for by the owner. Gas, water, sewer, and electric are all separately to the tenants.  No lawn care provided or paid for by the owner. That is all on the tenants as specified by the lease.

Anyone who has experience with duplexes in the midwest in a similar price range have any thoughts on this deal?

Christopher J Lemmon · Answer

@John Baughman   I live in University City, MO. I think my updates below flesh it out a little more. I should cashflow over $100/ unit.

$1425.  Income

-$243.    Vacancy

-$544     Mortgage, Taxes, Insurance

-$145.    Management

-$150.     Repairs

-$125.    Cap Ex

$218.     Net operating income

$109.    / per unit profit

John Baughman · Answer

@Christopher J Lemmon I read your heartfelt defense of investing in D class neighborhoods in the other thread.  I wish I had that fire and resolve when I was working in the St. Louis area.  Awesome!

John Baughman · Answer

Chris, with Vacancy included you'll be cashflowing $33/month.  Is that correct?  Is there room to raise rents?  Out of curiousity (former STLer) what area?

Christopher J Lemmon · Answer

Let me see if I can clean this up.

Inspection is a purchase cost. One time.

Taxes  = $125/monthly

Insurance = $61/monthly

Water, sewer, electric, gas all separately metered to the unit for each tenants.

Everything else listed above is listed monthly.

Repairs = $150/monthly

Management = $145/monthly

Cap Ex = $125

Vacancy = I have not struggled with this the same way other investors do. I have some tenants who have been in my units for 10 years, 3 years, etc. I under cut market prices and give people more than they expect. I have not had people move out much. But I think I could safely assume 83% occupancy. That's conservative in my opinion.

Income = $1425 x .83 = $1183

John Leavelle · Answer

Howdy @Christopher J Lemmon

I agree with @Russell Brazil.  However, for analysis I need some clarification.

You need to show all income and expenses as either monthly, annual or both.  Do not mix (i.e. Taxes $1496, Rents $1425, Management $145).  It is confusing.

You did not include Vacancy.

What is the "Inspection $450"?

Are you responsible for any utilities? Water and sewer are common.

It does pass the 1% rule:  $1,425 / %91,725 = 1.5%

Using the 50% rule for Cash Flow analysis:

$1,425 income / .50 = $712.5 expenses

NOI = $1,450 - $712.50 = $712.50

Cash Flow = $712.50 - $544.00 Mortgage payment = $168.50 ($84.25 per unit)

What is your minimum cash flow criteria?

Speaking strictly from an analysis perspective the property is worth investigating further.

However, I would strongly consider the type of area it is in before anything.

Russell Brazil · Answer

I would not take it based simply on it being a C/D neighborhood.