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Updated over 6 years ago,
Running Numbers Based on Purchase Price or After Repair Value?
I'm looking at a duplex in the Ogden Area (about 50 minutes north of Salt Lake City, Utah). The owner has rejected several offers that have come in below asking price and is dead set on his price. That being said, I'm having a hard time getting the numbers to work at the asking price. The other challenge is that the current tenants have leases that don't expire until the spring of 2019. Each unit is currently 2 bed/1.25 bath renting at $950/month. There is plenty of space in each unit to make them each 4 bed/2 bath and bump rents to ~$1300.
That being said, when I run the numbers based on the current leases and asking price, I'm positive $50/door until spring (Cash on Cash of 6.5%). However, after the leases are up and I remodel each side and bump rents, I'm cash flowing at $325/door (Cash on Cash of 11%).
My question may have an "it depends" answer, but I want to know your thoughts. Would it be too risky to take this deal? If the numbers don't work very well right away, but they will work great in 6-8 months, can I justify the deal?