My Landlord is selling duplex, potential 1st deal

[Nick Quintin]

Hey BP Columbus!

We are hoping to gain insight on our first potential MFP deal. 

Our landlord has indicated that he is looking to list the duplex we have been renting for 2 years +. 

The MFP is a 1,872 sq ft 2 unit, 3 bed-2 bath on a 4,800 sq ft lot, built in 1910. Value is estimated between 260k-280k. Current rents are $1400. Clintonville neighborhood, red hot market right now. 

For this deal, we would want to live in our current unit and rent out the other (1 bed, 1 bath)

The good: New AC, water tanks, windows. 

The bad: Needs updated baths, kitchens, refinished floors, paint, deck and landscaping at a minimum, basement is gross. 

Also, the upstairs 1 bed/bath unit is occupied by a long-term tenant who is paying well below market rents. 

Because this is our first deal, we want to line up home/HVAC inspections, and also have a contractor come through to help put together a reno estimate. This will help us determine the current value, the reno costs and the ARV. 

Financing options would include an FHA, a 203K (if it qualifies), or potentially seller financing.

Here are some preliminary numbers I ran: 260K FHA no repairs and current rents on left, 300K 203K, reno and higher rents on right:

% Down Payment	5.00%	5.00%
Down Payment	$13,000	$15,000
Remainder of closing costs	$3,000.00	$3,000.00
Total Due at Signing	$16,000	$18,000
Mortgage Rate	4.60%	4.60%
Length of Mortgage in years	30	30
Monthly Mortgage payment	$1,266.00	$1,461.00
Taxes	$386.00	$445.00
Sewer and Water	$50.00	$50.00
Trash	$50.00	$50.00
Heat/Utilities	$ -	$ -
PMI	$ 180.00	$ 208.00
Cap Ex and Ops	$200.00	$200.00
Insurance	$65.00	$75.00
Mgmt Fee	$165.00	$165.00
Vacancy	$132.00	$132.00
Total Expenses	$2,494.00	$2,786.00
Unit 1	$500.00	$700.00
Unit 2	$900.00	$1,100.00
Total Revenue	$1,400.00	$1,800.00
Cashflow/month	($1,094.00)	($986.00)
Cashflow/year	($13,128.00)	($11,832.00)
Cash on Cash Return	-8.42%	-6.57%

I have not talked with the seller in detail yet, as I want to see if this is worth a deeper dive first. 

From what I can see, this would not come close to cashflowing until the mortgage is paid down. 

Please let us know if you are able to share any thoughts or ideas. 

Thanks!