Duplex too good to be true?

Question

Hello to everyone,

This is my first post on BP after being a long time on looker from the sidelines. My name is Raffaello and ive been trying to analyze a lot of deals to sharpen myproperty analyzing skills.

I came around one duplex for sale that the numbers look too good to be true.

It is a REO duplex for sale in an up and coming part of Miami also it is close to downtown Miami

Sales price $245k 3-1 side and smaller 1-1 side

3-1 side rents for $2,500-$3,000

1-1 side rents for 1,500-$1,800

tax is $4k/year

I would be putting down 20% or 62k which would put my monthly payment at around $1,700/ month

the house looks to be in decent condition I am a also a realtor so i am going to pass by the property to see it to make sure there isnt anything wrong

My only concern is it has been on the MLS for about a month and no one has jumped on it, it would cash flow about $2k/ month is there something that I am missing?

Could this really be that good of a deal? i would love to hear  someone else'sopinion on this deal

thanks to everyone in advance!

Christopher Phillips · Answer

@Raffaello Cervera.

You're missing the expenses

On the 50% rule, $4,000 in rent would be $2,000 in expenses (vacancy, repairs, capex, utils, proper mgmt) plus the $1,700 month mortgage. $3,700 in expenses. $300 in cash flow.

$300 x 12 = $3,600 per year cash / $62,000 down would be $5.8% ROI.

This is a thumb in the air since it doesn't include closing costs or repairs, which will adjust down your ROI %.

Christopher Phillips · Answer

@Raffaello Cervera

That place is in rough looking shape. Not sure how it it's going to get rents like you mentioned.

Justin Koehn · Answer

@Raffaello Cervera It looks like that could be an ok deal, but like @Christopher Phillips said, you need to really be careful of your numbers. You have a HUGE range of rents that you listed. Are you sure the rents are within that window? Those numbers are 20% different (%2500 to $3000). I would call a respected property management firm that works IN THAT AREA and get a really good idea of vacancy rates. Sometimes the 50% rule is too thin and you should really use more like 60% - depends on the area, vacancy, etc.

5.8% doesn't sound like a home run to me, even if that is good for the area. If it really is good, why hasn't it sold in the last month? I would be very careful to not miss something that has caused other investors to pass on this one. I think in this market wisdom, self-control, and REALLY THOROUGH due diligence are critical. Good Luck!

Karl B. · Answer

I once bought a duplex that had a driveway that was narrow and not long. I remember my dad (who owns a commercial real estate empire) said it would be an issue (he tends to be critical of my deals until he sees the cashflow after I buy - he's just being a protective parent.

Luckily, there's a lot of street parking (it's a one-way street, which helps).

Definitely not a deal-breaker. Especially if it's close to downtown and is accessible to public transportation (a lot of people near the big city don't have a car and this fact - being near a bus stop - is important to them).

Yeah - it would be cool if there was a driveway - but it doesn't make the deal a bad one. Note the parking situation when you're at the property. There could be ample street parking and parking on a nearby side street as well.

Heck, for most of the winter my tenants didn't shovel the driveway and so nobody even parked there so it was as if there was no driveway (not a Miami problem, of course).

What's funny is when I made my offer I used the driveway as leverage, telling the selling agent (who ended up being the dual agent and received a nice commission) I'd have to have it paved back further so multiple cars would fit. I didn't end up doing that (I live out of town and bought the property without having been there and when I saw the situation I realized it wasn't worth the cost) but the point is you can make that argument though if you're dealing with a bank they're much less likely to care.

But I don't see the lack of a driveway as a major issue.

Karl B. · Answer

I made a nice, long post and it deleted (argh). So I'll highlight what I said: if the inspection checks out and it turns out there aren't any major issues of any kind then based on the numbers you provided it's a great deal. And if it's been on the MLS for a month you can always make a lower offer and if it's accepted then the numbers will be even better. Definitely move on it and let us know how it pans out.

Raffaello Cervera · Answer

@Karl B. thank for the idea! I would've never thought to ask for the inspection report. Also I just found out that the property has no parking spots do you think that would affect the amount of rent I would get a month?

Raffaello Cervera · Answer

The house is pretty old it is from 1936 but that is pretty normal for that area and from what ive seen its in pretty good condition im going to make an appointment this week to see the house

Raffaello Cervera · Answer

not really sure how to send the MLS sheet but here is the sheet from zillow

https://www.zillow.com/homedetails/994-NW-2ND-St-M...

Henri Meli · Answer

@Raffaello Cervera How old is this property? Is it currently occupied? Make sure there aren't any massive work to be done to get this place rent ready.

I believe $300 cashflow in Miami on a duplex is pretty good.

Duplex too good to be true?

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