Duplex Analysis

[Mike Cartmell]

Please give me your opinion on this property I am considering. It is a side by side duplex and seller is asking for $135k but I'm thinking of offering 125k. Both units are currently occupied renting for $650 and $700. Numbers below:

Purchase price: $125,000
Down Payment: $25,000
Mortgage payments: $6,084/yr (PI $507/month @ 5% 30 yr)

Rental Income: $16,200/yr

Vacancy 5%: $810
Property Tax: $900/yr
Insurance: $800/yr
Property Manager 12%: $1,900/yr
Maintenance: $2,400/yr ($100/door per month)
Utilies: $300/yr water
Advertising: $200/yr

Total Operating Expenses: $7,310
Net Operating Income: $8,890
Less Mortgage Payments: $6,084

Total Cash Flow: $2,806

Cash on Cash Return: $2,806/$25,000 = 11.2%

Any errors in my numbers?

Thanks in advance.

Mike

[Joel Owens]

My quad's come out to 64,000 a door for 850 to 950 a month in rent on my apartments.

I don't look at it only from a cash flow perspective however.The area I have the buildings in is an A location prime for redevelopment down the road.

Mike it sounds like your local market is competitive with investors and your margins are thin.

On one hand it is good to be in a thriving market where demand is strong because usually supply is lower and the amount of rentals and new development for multifamily cannot meet demand.

This helps rents grow at a rate that outpaces utility increases and inflation.

The downside is it can make some investors overspend on a property because they feel good about the market.

I looked for over 2 years before I bought something.I said many times those buyers were nuts.I tracked the properties and many investment properties after purchase just 1 to 2 years later went into foreclosure.

They bought at such a price that it wasn't sustainable.I look for a 10 CAP or better on my purchases.

The problem is if you someone who has only gotten 1 percent interest off of a CD or Treasuries or they have gotten beat up in the stock market.Those types of buyers jump up and down to get a 7% annual CAP return beating out your offers everyday of the week.

By in large many buyers like this can be lazy.They only look in the MLS for listed properties.Value can be found marketing to sellers that are not on the market.They don't want to make public all of their problems ( I know it is common knowledge of default at some point but this is their mindset ). Instead they just want to get the pain over with as quickly as possible.

You also have to find a bank that is motivated and doesn't want the property (shopped) listed by the seller to fully expose multiple offers and compete with other investors.

This is why many people wholesale.They make a few k on a marginal deal and let other investors take the high risk.Then they only buy when they get a really good deal for themselves.

I would say "Do not get emotionally attached to this deal and overpay because you wanted to BUY SOMETHING" Instead just treat it as a property and if someone overpays for your goals then move on to the next.

Remember it is easy to build a crap portfolio with marginal returns.It is much,much harder to build long term quality properties at a great price that will create generational wealth for the your family.