what do you think of this Duplex deal?

Question

Hey Guys, I found a duplex for sale that I'm thinking of buying. It has structural damage, I'm waiting for the report from the agent. Asking Price:500K and trying to get it for $475K Annual Rent: $32,160, I don't have the annual expenses yet. There are two detached homes 2/1 and 1/1. The 2/1=900 sqft ($1,440) and the 1/1= 540sqft ($1,240). What I'm thinking about doing is making them both into 3/2 1,100 sqft each and the market rent is $2,500 for a 3/2 which would put it to $60,000 gross. The AVG CAP in the area is 4.94%. I am using 15K for expenses (if you have a more accurate number let me know) which would put us at $45K- NET.  Then flip it for $835K which equals to a 5.3% CAP. PP=500K ADDITION+landscape+Repairs+closing costs===$140K So ALL in 640K. There are some comps selling in the area with Gross Incomes of around 30K for mid $700's. A triplex with 43K NET is active for $950K. What do you think?

Adam Mittermeier · Answer

Doesn't sound like a good idea if your looking for cash flow.

Edward Liu · Answer

You are underestimating the costs.  When doing house expansions, there is no rent, but you still need to pay expenses.  When you sell, there are commissions.  $140k seems very low.

For comp, drive by the those properties and see conditions compare to this one.  Sometimes what is on paper does not tell the whole story.

Just passively look at the numbers, don't think this is a good deal.  Read some articles on the 70% rule.  Not everyone uses it, but still a good reference point.

John Bucci · Answer

What market are you in?  Keep in mind a duplex will be evaluated based on comps, not based on net income. Don't evaluate it like a commercial apartment building or you may not get the appraisal you need to sell for the high number. Compare to similar bed, bath, sq ft, and condition. Not the income.

What's the timeline on the renovation? Did you factor taxes and holding costs?

Also, sounds like this duplex won't cash flow much, you're under the 1% rule. but sounds like it is a hot market for a flip I guess. @Kirt Sangha

what do you think of this Duplex deal?

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