Will this Duplex/Storage Unit Combo Cash Flow?

[Cody Jackman]

Hey BP, I have been searching for a cash flow property in my area and found something with potential. This property is a duplex on 5 acres with a barn that has been converted into storage units and is priced at $250,000. The rentals are a two bedroom and three bedroom, currently renting for $750/month and $950/month respectively. There are 40 storage units of various sizes, but these typically go for $75/month. Utilizing the Four-Square Method, I began with the total potential INCOME of $4,700/month.

Now for the expenses category I included smaller items like CapEx, Lawn/Snow, and Property Management even though I plan on managing the property. All those items, along with the mortgage payment give me a total of $3,00/month in EXPENSES. This would give me a CASH FLOW of $1,700/month or $20,400/year.

Sounds good to me! But is it a good investment? I happen to know the property as I drive by often and am aware it needs some foundation work, which can cost up to $10,000. I also know the inside is clean and updated, so may be able to get by for now. In addition, the tenants are willing to stay. After covering closing costs and allowing for a $15,000 rehab budget, my TOTAL investment will be about $267,000 at that asking price. Now I know the agent and have a good relationship which works in my favor. By these numbers, I estimate a 7.6% return. Or, for the 2% rule, the property at that asking price is 1.88%.

Do you try to make an offer or keep searching?