Evaluate my deal and tell me what you think?

[Colin M.]

Hi there

I'd like to ask BP to run their numbers on a potential deal Im looking at and give me your thoughts on to buy or pass.

New construction duplex (x2 3bed/2bath), Asking price $315,000), market rents are $1300 per door, most likely 25% downpayment, insurance approx $120 a month, tax approx $15 a month, HOA $20 a month, add other costs you would typically account for also....

Thoughts?

[Russell Holmes]

@Colin M. I believe I know the exact property you're discussing as well.  I've looked and negotiated on several of these guys duplex builds on Yak, Albatross, Bittern. I've even recorded a walk through video of 655 Yak.  Walked and offered on one on Yak and then followed up with a different buyer and another one on Yak Ct. Two on Bittern are their 9th and 10th builds of these I believe.  Taxes are going to be approximately $3800-4200/yr according to Polk Co Tax estimator.  I had an insurance quote of $538/yr for the whole building, but most of their build sites are in unspecified flood zones so you'll need an elevation certificate for accurate flood premium which could be another $800-1400/yr.  I believe Yak and Bittern are flood zone, but Albatross wasn't.  Could be mistaken there.

  There are solid comps for $1300-1395/mo in rent per side, and I've confirmed this with a couple PMs.  These sellers have a little wiggle room and I had gotten them to a pretty good number, but what held up my buyers interested is that there's been an increasing supply of rental units in this price range and in this specific area of Poinciana.  They are not being absorbed quickly enough to keep building and buying at the moment.  PMs I spoke with recommended going Section 8 with the units to have an easier time filling.  Market rent would still apply, but the other rentals sitting on the market don't look to be Section 8.

Being new construction and needing very minimal reserves for repairs and capex, the numbers worked out pretty well. It is not the same as buying a 20 year old duplex for the same price and rents.  Every single thing is brand new, so you have full lifespan to plan reserves for replacement.  Polk Co has really low taxes as well.  These guys had a similar one in Deland and estimated taxes were nearly double.  About $7k/yr.  This is why people that recite the 1% rule on every deal get tiring.  Same property, same basic rents, same price, two different counties and huge swing in taxes.  At $3600/yr in additional taxes it costs $300/mo extra for the same "rent/price ratio". So $2600 gross rent on $315k (brand new) acquisition may work out awesome in Poinciana and horribly in Deland.  Suburbs of the same metro with vastly different taxes and similar rents.

As appealing as these duplexes are (much cheaper than new duplexes anywhere else in Central FL I've seen), I ended up closing on better deals with the clients who had looked at these duplexes.  Most recently was a 3/2 house and 1/1 guest house in Eustis (Lake Co.).  It needs about $1500 in siding repairs and a $1000 water meter to properly split the water bill and add $125/mo to net income, otherwise all systems and finishes are excellent.  $196,500 price paid and $1900/mo in gross rent with existing tenants in both units.  They are below market by about 15% but paid by very clean, gainfully-employed, early-paying tenants, zero vacancy and they'll bump them closer to market at the end of the lease.  

I'm not saying the Poinciana duplexes are a bad deal, but be sure to account for estimated taxes, higher than typical rental inventory, and potentially unknown flood insurance premium.  For a zero-rehab turn-key rental, its a pretty solid deal.  I've seen similar new duplexes in Apopka (NW Orange Co) sell for over $400k with rents in about the same ballpark. I wouldn't want to have to re-sell the Poinciana duplex anytime in the next 3-5 years if these guys keep cranking out new ones, but I think on a 7-10 year horizon they'd be a pretty solid, low-headache hold.