Duplex Due Diligence

[Dave Brinkman]

Curious to get the communities thoughts on a duplex I am currently looking at with detailed numbers below. The majority of the investment properties I have been looking at in Columbus I have struggled to get the numbers to work with a goal of 8-12% cash on cash returns. I'm curious if this is one or both of the following reasons 1) real estate as a whole has heated up and valuations are becoming less attractive 2) I'm too conservative with my repair, capex, and other estimates.

Rent - $1,020 per side * 2 = $2,040 per month

P&I - assume 4.5% 30 year with 25% down - $760 per month

Taxes - $317 per month

Insurance - $83 per month

Vacancy ($1,530 per year or $128 per month)

Prop Mgmt - I would be the landlord to start.

Repairs - $50 per month

Capex - $200 per month

Other expenses - water $42 per month

Cash investment - $50K downpayment + $10K repairs + $2.5K closing = $62.5K cash investment

I come up with 8.9% cash on cash or 7.3% cap rate.

I would classify the area as B with prices of $90 - $110 per sq ft on similar properties in the area. What are your thoughts? Thanks in advance.
 

[Jeffrey Hotz]

In a B area I would certainly estimate more for on-going maintenance, and reality is since it's more on the equity scale of investing your cap rates are appropriate. I don't use cap rates to calculate as they don't really mean anything to me, more than the amount of $$ in my pocket at the end of the month.

Areas span from equity down to income and clientele certainly changes with that. For higher end rentals your going to have a client that requests a certain level of quality, and will call more often with issues than a D class rental.

Hard to say at all whether this is a good deal or not as a lot of that question has to do with your business model and what your looking for.

I'd also ask about on-going property management and if this is something you're familiar with managing? It's something most most don't add in, but a good property manager is worth the $$ all day long. Otherwise you should look at the the time value of money here and if worth your effort more than another investment strategy. This may look like a 8% on paper, but quickly can become a 2 or 3%, or less.

I know everyone wants to be a RE mogul, but I'd say more often than not the return is higher if you simply use that down payment in an index fund and spend your weekend doing something other than cleaning up a mess the tenant left.

My 2 cents really, take it for what it is.