11 Unit Duplex Purchase Analysis

[Pete Kelly]

I am under contract to purchase 11 duplexes and have a 10 day DD period.  Although I have scrutinized the numbers I would appreciate the feedback of the BP community:

Details - $1,034,000 purchase

$94,000 per unit

$1200 month rental with a 10% vacancy rate over the past 3 years

Total Annual rent - $145,000 net of vacancy

Expenses:

Payment - $4454 x 12 = $53,448 - 30 year amortization w 15% down - approved w local bank

Annual taxes - $10,000

Annual Insurance - $8000

Annual Maintenance - $26,400 -

Mgmt Fee - $10150

Total Expenses - $107,998

New Roofs in 2014

All inspections of HVAC being completed next week

I sincerely appreciate the informed analysis of this deal.  Please let me know if there is any additional information needed.

[Oren K.]

Pete - Without knowing your market, commenting if this this good or not is difficult. Having said that, I do find some of the numbers 'off';

- On 11 units, to be paying $8,000 in insurance is ~$900 / unit / year. Unless this is some kind of high risk area (which with a per unit cost of $94K I would doubt), this seems very high. If you take a look at many other breakdowns, they usually are in the $200 - $250 range. I would get another quote or at least understand why it is as high as it is.

- IF I exclude the mtg payments, your total expenses are ~$54K which is ~37%. Unless it is brand new construction with all utilities paid by tenants, this is very very low and even if true, not sustainable.

- Also taxes at 1% (10,000 / 1,000,000) seems low but depends on the assessed value and mill rate. Make sure you calculate taxes based on the higher of; purchase price, current value. This will avoid being side-swiped by taxes in case they go up.

- I don't see you listing many items that are usually separated on expenses; Utilities, Landscaping, Pest control, trash, etc, etc. If you are including all of these things with the annual maintenance then that number is probably to low.

- Finally, a property management fee of less then 7% is not unheard of but at the lower range for most areas. Make sure you know what is included. For example, there many places where the PM will charge an additional fee for putting a tenant into a unit (as much as 1 1/2 months) and even with an existing tenant, charge just to get them to resign the lease. This can add a lot to the PM costs depending on the turnover. I have always felt that this is a conflict of interest but seem to be standard operating practice in many places.

That's it. Good luck.

Oren