Seeking Advice on Profit Margins

[Nick Halula]

Hey all, my brother and I hoping to purchase a property soon in Baltimore, MD soon but I was hoping to get some advice before hand. The current property I am serious about is a turn key 4 bed/2 bath duplex in a C neighborhood. I use an excel spread sheet to calculate my profit margins/expenses from one of my friends who is a seasoned investor. For this calculation, we account for a 3% vacancy/month, 5% cap ex/month, 7.63% interest rate, taxes, insurance, and a few other things. I am using conservative numbers everywhere possible just to assume the worst. The previous owner was renting each unit for 1300/month but did some repairs and renovations before listing this property and we now think we could rent for at least 1500/month. Renting each unit at 1300/month, we would profit 170/month (total), at 1500/unit- we'd take home 540/month, 1600/unit- we'd take home 722/month. 

I know this is a very difficult question and market to invest in but I was hoping to get some insight from the community on whether you think these are profit margins make it worth it to buy. The hope is that we could refinance in a few years and obviously take home more. We are doing our best to find others in the area and figure out profit margins on those properties, but they all seem to need a lot of work, and not much more profit margins. 

[Chris Seveney]

Quote from @Nick Halula:

Hey all, my brother and I hoping to purchase a property soon in Baltimore, MD soon but I was hoping to get some advice before hand. The current property I am serious about is a turn key 4 bed/2 bath duplex in a C neighborhood. I use an excel spread sheet to calculate my profit margins/expenses from one of my friends who is a seasoned investor. For this calculation, we account for a 3% vacancy/month, 5% cap ex/month, 7.63% interest rate, taxes, insurance, and a few other things. I am using conservative numbers everywhere possible just to assume the worst. The previous owner was renting each unit for 1300/month but did some repairs and renovations before listing this property and we now think we could rent for at least 1500/month. Renting each unit at 1300/month, we would profit 170/month (total), at 1500/unit- we'd take home 540/month, 1600/unit- we'd take home 722/month. 

I know this is a very difficult question and market to invest in but I was hoping to get some insight from the community on whether you think these are profit margins make it worth it to buy. The hope is that we could refinance in a few years and obviously take home more. We are doing our best to find others in the area and figure out profit margins on those properties, but they all seem to need a lot of work, and not much more profit margins. 

 3% vacancy in class C on a single unit is aggressive. That is a new tenant every three-ish years with only a month vacancy. 5% capex. Is everything brand new? That is $75/mo  - what are you going to do when you need appliance replacement, carpet, paint etc. What about windows, roof, HVAC? Is this all new?