Deal analysis for this SFR??

Question

Want PB's opinion on this analysis:

65K Property SFR (1/2 duplex- own one side)= 2BR/2BA (need minor repairs like repainting, backyard trim, little upgrades= HVAC and Roof is fairly new, good for another 10 years)

20% down ($13K) with @4.5% interest so $52K loan amount

$3,031 in closing costs

$1,240 in prepaid interests for 30 days and homeowner's insurance and property taxes escrow for 6 months

Total cash on close-out: $17, 271

Income:

$675-725 rent (market range for this property) so $700 average market rent

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Breakdown per month expenses

P&I= $263.48/month

Taxes&Insurance= $156/month

TOTAL PITI: $418.48/month

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Vacancy (8.33%)= $61/month

Repairs (10%)= $70/month (if rent collected is $700/month)

CapEX (8%)= $56/month (if rent collected is $700/month)

Property Management (11%)= 74.17/month

TOTAL misc expenses: $261.17

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Water/Sewer/Garbage/Electricity= Tenant pays

HOA= None

Lawn care= Tenant

TOTAL PITI + Misc expenses= $679.65

Average Market rent= $700

Cash flow per Month: $20.35

Cash flow isn't that great, a lousy $20, is it worth the risk?

Greg Scott · Answer

Peter:

Congratulations on starting early in your real estate investing.

The numbers on this deal look fine.  Based just on the numbers, I would consider doing this deal.  However, it is not the numbers that would make me hesitate.

Do you want to own half a duplex?   Duplexes are usually good for cash flow, but you don't tend to get the appreciation you do in SF.   That is just a trade-off decision.  Owning half a duplex introduces lots of other complications because unless you want the property to look a frankenstein, you need to coordinate closely with the other owner.  In that respect, this sort of deal carries many of the negatives of a condo purchase.

Happy to chat more privately if you want.

Good luck.

Jonathan Carter · Answer

As someone mentioned, throw out a lower offer. Or if possible see if the numbers work with a lower down payment. 17k is a lot to earn $20/mo.

Orkeem Davis · Answer

Put up 15k in order to make $20.00 monthly.  Run for the hills.  Not enough cash flow and unexpected problems do occur, i.e. broken pipe, plumbing concerns, etc.  The negatives outweigh the positives --- Not a good deal.

Peter K. · Answer

@Joe Scaparra

Got it.

Joe Scaparra · Answer

I have done fine with the 1/2 duplex.  Cash flow would be better owing both sides.  Usually buying a half duplex is not as advantageous as owning both.  For example, here in Austin TX we are starting to see the condo-ization of duplexes where owners are re-platting them as individual townhomes so that they can sell each side individually. Selling them that way brings in more money than as one building and it is easier to find someone to buy just one half vs the whole.  Therefore someone buying a half is usually paying more than 50% of a whole one.

You might be buying a half duplex with a buddy or someone else because you have little experience and feel it is better to start that way than just jumping in alone.  That may be enough of a reason to get started vs not at all but if that is the case make sure you are investing with someone you have a lot of trust and confidence in.

Peter K. · Answer

@Joe Scaparra

I whole-heartdly agree. Especially with your experience as a 1/2 duplex owner, that helps me out a lot.

However, if it is cash-flowing fine, you wouldn't do it again because of the reasons listed? Financially speaking, did you lose out on your cash return or were you more involved then you had to be?

Thank you for your input!

Joe Scaparra · Answer

There are a lot of good points made here.  I am now a seasoned investor, but early on I bought basically half a duplex.  It was in a new development that was still being built out and the developer was marketing them as townhouse but with no HOA.  I bought on a whim (golf outing) because the seller was FSBO and selling 10k below what the developer was selling the exact same plan.  Long story short, I still have the property and it is cash flowing fine, but I would not do it again.  Here is why.

1.  You have no control over who rents the other side and this duplex shares a porch.

2.  You have no control over needed repairs that affect both units.  Builder put a piss poor roof on, had many issues to the point of needed replacement.  Had to coax and wait on the other owner to finally get a new roof put on and share cost of fence.

3.  You asked, well then you wouldn't invest n a townhouse or condo if you won't invest in a half duplex.  Probably but at least with most townhouse and condos you have a HOA or Condo association that regulates standards to follow and the association is responsible for all external maintenance.

4.  Lastly your real bang for your buck and distinct advantage of a duplex is better cash flow and economies of scale.  You lose this advantage with owning only one side.  For example, home insurance is the same insuring the entire duplex or half.  Closing cost is fairly the same owning the entire duplex verses half.  Managing tenants are easier if you own both.

I would pass, but to each their own.  Good luck.

Peter K. · Answer

@Katherine S.

Yeah, I estimated expenses higher because I wanted to be passive.

I don't, I don't think it's worth it. Thus, I wanted BP's opinion. Thanks for your input.

Katherine S. · Answer

@Peter Kim

Your estimated expenses are a bit higher than I would calculate, but your market is undoubtedly different than mine.  That said, your Cash on Cash return is just over 1.4%.

Do you really want to tie up over $17k to get less than $250/yr return?

Jason D. · Answer

Condo I would not. There are too many lender stipulations with condos that can lead to problems with selling. Townhouses I would think about if there was an HOA that maintained the exteriors. I just don't want to deal with disputes with neighbors regarding attached structure. It's a hassle I choose to avoid

Deal analysis for this SFR??

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