Good or Bad Deal? Duplex

[Heath Watson]

2 bed 2 bath 1780sq ft. Each unit is 1 bed 1 bath which is a downside. One side is rented for 550 atm but I know rents could be raised some. The other side is gutted and 10-15k would get it rent ready (maybe could turn into 2 bed with more money and time). They want 97k for the duplex, and with interest rates high even with 20% down principal and interest is right at $560. I live 2 miles away from the property so I would try to self manage. I don't own any rentals and wanted to get other opinions on the deal. New hvac, windows, blown in insulation, new siding, newer roof.

[Leo R.]

@Heath Watson although it's critical for the property to pencil out, one of the other most important considerations should be: what type of tenants will this property attract?

There are some duplexes that have the best cashflow numbers in the whole country, but I wouldn't touch 'em with a ten-foot pole, because the tenants would be an enormous headache and liability. A duplex in an F or D-grade neighborhood with the least qualified tenants in the city just isn't worth my time and effort--regardless of the cashflow numbers...I don't care if the cashflow is $200, or $2,000--I just don't need those problems in my life (and I learned this lesson the hard way).

I once had a property that was cashflowing nearly $2500/mo--it was the best cashflower in my entire portfolio!  ...but, it was a trainwreck. There was constant turnover, the tenants were extremely rude and inconsiderate, the tenants always had very shaky employment, the neighbors called the police on the tenants consistently for noise violations, trash, loose (and potentially dangerous) dogs, etc., etc. More than once, tenants completely trashed the property. Tenants were constantly late on rent, and when I would contact them to collect rent, they'd often yell and threaten me. The property was a complete nightmare to manage. That amount of stress, liability, and work just wasn't worth the $2500/mo cashflow I was getting.

Nowadays, I focus on mostly B and A class properties, and I'm willing to accept much lower cashflow numbers if I know that my tenants will be highly, highly qualified (e.g.; traveling nurses and doctors, airline pilots, tenured college professors, etc., etc.). I almost never have any issues with these tenants. Although my cashflow is lower, my sanity is intact (tough to put a price on that!)...plus, I'm getting much better appreciation (and likely have much better protection against market downturns).

So, it's worth asking yourself: what type of tenants will rent this place, and will it be worth the $x amount of cashflow to deal with those types of tenants?

Now, I get it: many new investors don't have the ability to start with A and B class properties (which is why so many of us cut our teeth on C's and D's). ...but, sometimes you can find niches in C class properties where there are good tenants. For instance, there are certain properties that are C class, but that attract graduate students (e.g.; nursing students, doctoral students, etc.), and many of these tenants are solid (they tend to pay on time, and are mostly respectful and easy to work with, in my experience). ...note that I said graduate students (not undergrads, which is a whole other niche). 

Good luck out there!