Is this a good deal?

[Amy Kircher]

Old house purchase- duplex, is this a good deal?

I am looking at purchasing a 100 year old house that has been turned into a duplex. Asking price is $89,900 current total rent with tenants placed is $1,400. The tenants are ok with everything as is but I am concerned with the wonky floors in a couple of places (newer floating floor actually has cracks in it at a high point in floor) and the roof isn’t exactly straight but has new shingles so may be ok. Several updates have been done such as electrical and plumbing. I would want to fix some walls (painted paneling that looks bad), put in washer/dryers, and reconfigure cabinets in 1 kitchen.

My monthly payment with taxes and insurance:

$600

300 for repairs/vac/cap exp

130 trash/water/sewer for both

140 electric (for just 1 unit)

= 1170.

So Cash flow would be just over $200/mo

I would manage it myself, up rent $50 each unit for w/d and allow one pet for extra $25 mo each unit. So I could add another $150 a month. I feel like rents could be potentially higher (esp. for the 3 bedroom side)

Too close for comfort? The seller isn’t willing to budge too much from the asking price.

Worth buying?

I currently rent out the lower level of my house so I have some experience plus I’m a big DIY’er and want to expand my portfolio. 😃

[Keith Linne]

@Amy Kircher - Are you willing to share the exact city? If not, I understand.

I have a mix of 9 units in Duluth, mainly rented to college students. Regardless of market, here is what I would point out:

- I’ve found $100-200/month works out to be the average maintenance/random work order requirement per unit.

- CapEx (especially considering 100+ years old) feels very light, based on your total of $300 including maintenance. This is a tricky figure, because a true bulletproof CapEx figure prices you out of 99% of rentals (in my opinion). That being said, too many investors ignore cash-on-cash returns and total ROI. If you aren't beating the historic average return of the S&P, why take on the additional headaches associated with rental property? If CapEx isn't figured well, one furnace, roof, etc can wipe out years of cash flow.

- Although you’re fine managing, there will likely come a time when you do not want to (or cannot) continue to manage personally. As such, always run numbers with management costs incorporated. That way, you can hire management if needed, or at a minimum pay yourself for the work.

- Ratio utility billing is a new allowable approach, where you’re able to bill back all utilities to tenants. I do this with all my rentals, as ratio billing increases our bottom line, while also giving tenants a heads up of what their monthly utility costs will be (this is disclosed during the leasing process). 

Without knowing the exact market/location, it isn't possible to give feedback on whether rents are in-line, which is your biggest area for potential income gain. I try to hit $400-500/door in cash flow, after allowing roughly the same for maintenance and CapEx on a monthly basis, though I'm getting much more strict on CapEx moving forward. More specifically, I want 15% COC return, and 20%+ total ROI, or I'll just throw the money in the stock market (index funds, etc).

Hopefully this feedback is helpful!