Rental Property Investor · Springdale, AR · Member since 2019 · 28 posts · 7 votes
Hello, I'm relatively new to investing in rental property and have a potential prospect that' I'm under contract for. I am at the end of my due diligence timeframe and have to make a decision by the end of the day or early tomorrow. Here's the link to the property in question: 810 S Nettleton Ave, Springfield, MO 65806
The seller has agreed to sell it for $75,000.
The property is currently rented for $520 (unit A) and $420 (unit B) needs about $13,000 in upfront costs to fix up. Once the units become vacant, I'll need to put in about $10,000 more, so I'm looking at about $23,000 in total rehab costs.
If I ran my numbers currectly, I think that if I were to raise the unit B's rent up to $520 then it would be grossing $1,040 after all the rehabbing is done. Does this sound like a good deal? Any advice would be MUCH appreciated!
Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes
7y
Hi Aaron,
$100 a month bump to the resident in Unit-B might cause a move out. You might have a cost to turn the unit for a new renter? Repaint, vacancy time, etc...
Irvine, CA · Member since 2016 · 545 posts · 614 votes
7y
@Aaron Lancaster Question regarding raising the rent on Unit B $100 per month, What is causing Unit B to be that much lower than Unit A? Is there a big difference in interior layout, finishes, appliances, etc. a $100 difference per unit on a duplex should be defined for the reason.
In regards to the $1,040 Gross rent, that number is irrelevant, The amount of rent that goes to your Net bottom line is what matters. because you're dealing with small numbers for a Duplex, you have to look at this deal as to when will you make your out-of-pocket money back?
Is this a cash purchase of financed? At what point in the cycle do you get your $23,000 in rehab cost and your 20% down payment or $75k cash purchase cost back? Keep in mind there is no true Cash Flow until all of your initial investment has been paid back from the Net Cash Flow.
Run your numbers and let us know at what point in the cycle to you break-even and start making money, Is it in year 3, year 5, or what?
Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes
7y
@Aaron Lancaster I look at it like this... you have a property that you'll be all in for just over $100k, renting for about $1000/mo.
How are you financing this? In my area, this deal would be pretty tight and I have no interested in dealing with units renting for so little. It would be a pass from me for those reasons.
Rental Property Investor · Sacramento, CA · Member since 2015 · 1k+ posts · 893 votes
7y
@Aaron Lancaster I don't know that market, but considering those rents I would offer substantially less, or maybe just pass on the deal. Is this off market? You better edit your post and take the address off in case anyone wants to compete with you for this deal lol.
Honestly, if your 23k rehab estimate is accurate I would say you offer 40k max for this thing considering how low these rents are. I would personally aim to buy this for no more than 30k myself.
I'm pretty familiar with that street/area. It's now a war zone or the worst street in town but it is far from the best. Depending on how you plan to finance it, your cashflow will be tight. Here are the generalized numbers if you refinanced 100% at $100,000:
Rent $1,040 (assuming you can raise the rent to $520 both sides)
Taxes $60 ($722.30 for 2018, this will increase)
Ins ~$75 (estimate - would need to get a quote)
P.M. $104 (assuming you will have management if you aren't local)
Maint. $104 (putting a minimum of 10% aside for a rainy day)
Cashflow $697 (before debt service)
Debt service $688 ($100,000, 20 yrs, 5.5% -good rate for the area)
Net Cashflow $9
These are the numbers we use to analyze cashflow alone, everyone's will be different.
There a ton of better deals out there, especially if this will be your first investment. One slightly major repair or a turnover/eviction could wipe out your cashflow and maintenance for the whole year. I agree with @Casey Mericle, it's not a good deal.
Hope this helps! Let me know if I can help you in any way.