Great Duplex right next to major university. Need Advice

[Aaron M.]

Hello,

I found a great deal on 2800+sq ft up/down duplex three blocks from major university in MI. The first floor is a 2/1, and the upper a 3/1. Both units have the square footage to make adding a bathroom in each extremely feasible making the house a 7/2. When we were in the house renting it (before we moved out) the upper and lower were both rented out for $700 each.

If I get it, I will add the two bedrooms making it a 7/2, turn it into student housing, and charge $450 per room (which is the going rate of a room in this town). The rehab would cost me $5000. $1000 for each new bedroom, and $3000 for installing carpet of the extremely beautiful Birdseye maple flooring. The house is a beautiful turn of the century 2.5story home.

The house is $150,000. I ran it through the BP rental analysis tool, and it said that I should make around $1500 after all expenses.

I have an attorney doing all my paperwork, and using the ARV of $189k, I offered the guy $132,000.

I currently have a SFH that I am doing a value add to that I bought for $196k. It is next to a private law school in the twin cities.

The value when I finish (adding two beds and a bath is $250,000. I bought it with an FHA loan, and was planning to sell it July 1, 2016 (FHA year and one day).

So, I don't have enough money for the full downpayment. But should have enough for something. They own the property free and clear, and have for 30years. They also, do not have a realtor anymore. The house sat on the market for 365 days without a single offer. I lived in the town for seven years during college, and the college is booming but the town ebbs and flows with the energies sector. The area is a depressed but growing area.

Aaron M. 

[Tom S.]

@Aaron M.  

I've done a number of seller financing deals (buying) and my main advice is to get a good attorney that specializes in it, as well as get the property appraised so you're not overpaying.  Sounds like you have a pretty good handle on those items.

My only other item to add to make sure the zoning will allow the addition of the bedrooms.  In Vermont when I rehabbed a place and added additional bedrooms, I had to get approval from the town because they assumed adding people would create more demand on the town water and septic system.  They even made me hire an engineer to draw plans on the extra required capacity!  I was able to get it all passed, and hopefully you don't have to jump through the same hoops.

Good luck and keep us posted.

- Tom