How to analyze a duplex

Question

A realtor has presented me with a duplex in the Nashville area. It's a pocket listing, apparently I have first look. I'm a newbie, this is my first investment. So I'm not rushing into anything.

I see a total dump, each unit will need at least kitchen remodel and bath remodel (so that's four remodeled rooms). There's a stripper pole and a sofa in one "kitchen" (not even sure it's a kitchen, I only see a stove.) Hardwood floors in other rooms seem ok. Some bizarre, 70's style interior wall surface. I just see a lot of work needed. Rents are low (870, 900) and could likely be raised with rehab. Each unit separately metered.

I realize this is limited information. Maybe you just analyze it like any other property, but what should I be looking for in terms of analyzing a duplex Thanks much!

Luka Milicevic · Answer

@Christopher Davis

I'm on just about every wholesale list and RE agent list in the Nashville area so I get to see a lot of deals

I obviously haven't seen the deal so I don't know for sure, but I'm basing it off my experience from what I have seen come through.

1- Do your own research on the ARV. Whatever the agent told you is at least 15% higher than the true ARV

2- Make sure to get a good handle on the renovation expenses. Whatever the agent told you the reno cost will be, a safe bet is to multiply that by 3. A full gut rehab, which is what you are going to need here will run you approximately $50sft. This depends on finishes of course, so this is a very ball park number.

3- Based on the above two factors, the price they are asking probably needs to come down by 40% which it obviously wont. Such is the market right now.

My best advice would be to REALLY make sure you have a handle on the ARV and the renovation expenses, as well as the actual market rent.

Philip Steen · Answer

Without any info that sounds like a classic BRRRR

Other comments are spot on. Go research the other. May turn up other opportunities.

good luck.

Philip

Scott Rogers · Answer

@Christopher Davis

"Realtor says she knows good contractors, not to worry."That's what I would also tell you if I was trying to sell you the property.

Daniel Evans · Answer

Adding to @Bill Plymouth, I'd estimate the ARV by finding comparable duplexes in that area which look pretty much exactly how this property will look after you fix it up. Your ARV would be somewhere around the price at which your comparables sold (assuming your comparables are good).

For estimating rent after rehab, try to find out what some comparable duplexes are renting for. Your realtor should also be able to help some with this.

Once you have those numbers (and a couple others), I've found the biggerpockets calculators to be pretty helpful in estimating returns. I personally don't see much difference between analyzing a duplex and say a single family home.

Christopher Davis · Answer

Haha I'm aware of that. I'm just taking it all in right now. I would ask her who and I would talk to them before buying. Believe me I am already aware everyone wants to sell me crap and take my money. I don't think she's trying to screw me though, there's no pressure. But still, it's like you can't trust anyone.

Dylan Earl · Answer

Never forget to do a good ole Market Analysis. Numbers are great but to achieve success in the long term you can't forget Location, Location, Location! How are the demographics? Population growing? Who will your renters be? Who's the closest & biggest Employer? Parks nearby? Grocery Store? What do the neighbouring homes look like? Don't forget to make sure that the building is compliant with the city and has all the proper setbacks, egress requirements, bedroom sizes, fire & safety compliance etc. Best of luck!

Christopher Davis · Answer

Thank you all for the comments and support. Even with all the support from this thread and others, I am still on my own to figure this out. I'm going to drive by the address today. I'm envisioning possibly a house hack here, living in one unit. I have to wrap my head around that idea too. And it would also impact the type of loan I get, being owner occupied. I mean, it could be a project. Just not sure I want to live in a ghetto. Although I could possibly take one for the team for a year or so.

Looking at an FHA loan with 3.5% down, but with so many added fees with FHA, this impacts my cash on cash ROI. Not to mention 30-40k in rehab and carrying costs during rehab. Realtor says she knows good contractors, not to worry.

I feel like I don't have enough information yet to analyze it in detail. Waiting on ARV and comps from the realtor. I will try and dig in to this today.

Christopher Davis · Answer

37209.

Wayne Woodson · Answer

I believe I can help with this. What is the zip?

Bill Plymouth · Answer

@Christopher Davis find out what the total cost of the property would be.  Purchase price plus rehab costs.  What will the ARV of the property be? How much will rent be after rehab?  How long will it take to rent the property? What are the costs of your financing?  How much will it cashflow?

If you aren’t already familiar with the neighborhood, I would suggest doing a neighborhood analysis as well.  Drive past the property and walk through the surrounding blocks.  What’s the average income in the area?  Is their access to public transportation?  Is there good walkability?

These are some good questions to dive into.

How to analyze a duplex

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