I need help structuring a 6 unit duplex deal!

[Sahleem Lee]

Good day everyone and I hope your RE investing is going great!

Starting this one off with an introduction.

I’ve been in the RE business for three years now and I love it! I’ve had an unsuccessful flip and lots of wholesale deals, that taught me a ton. Fast forward to today, I’ve been searching for deals everyday constantly, just waiting to pull the trigger on something. The ones that didn’t work for me, I wholesaled them to investors and made a fair amount of capital for my own projects.

I came across three duplexes driving for dollar$; they all had the characteristics of being vacant. My real estate spirit started glowing, and I immediately skip-traced the owner. I got him on the phone, we met up and got to know each other. Today, I saw the properties and they were right off the eye full guts! These things were built in the 60s and still looked as so. Me and my partner with a great amount of GC experience, estimated about 30k per-unit for rehab.

What bought me here today was the structuring of this deal. He bought them back in 2004 for 150k when they were in good condition. They are all 2/1 900 sqft; says he rented the units for 550 per-door when they were occupied. I used comps from near buy quadplexes that are renting for 725 per-door; same exact sizes. I also got confirmation from a local management company.

These properties are all on one deed! Does that make this deal commercial or residential? Also there are no comps for duplexes in that neighborhood whatsoever. Should I get it appraised?

I’m taking my time analyzing this deal very carefully! This is my first large deal and I’m in need of some advice. Please share all thoughts and suggestions!

Here is some math below.

PP: 175k

Repairs: 30k/unit

ARV: Unknown

Rents: 725/unit*4350= 52,200

52,200*50%(operating expenses)

26,100*36%(vacancies) = 16,704

I know I’m missing some things so please help me out!

[Gregory Schwartz]

@Sahleem Lee I think the first thing you need to establish is your end goal for this purchase. Do you want to hold it forever, 5 years, or flip it? Do you want it to cash flow or do you want to BRRRR all your money out so you can aggressively grow your portfolio?

ARV can be tricky and even appraisers will struggle. In my area, we reach back 1-2 years and open up the search to 3-5 miles. This is very different from SFH. Find a good REA who invests and they should be able to help.

When analyzing deals I like to start with the rent then subtract 25% for the vacancy, maintenance, CapEx and management. From there, use the actual property tax numbers and a good guestimation for insurance. This leaves you with the variables; debt and profit. Now you determine what cash-on-cash you want and what loan product fits that goal. Personally, I'm shooting for 8% cash on cash and at least $100 per door.

I hope this helps.