Off-market duplex in 98418

[Pete M.]

Hi all,

Looking to make my first investment property deal, and a broker brought me an off-market deal in the 98418 area (east of Tacoma Mall). The place is a 3/1 (1850 sq ft) and 1/1 (1050 sq ft) currently, converted SFH--I can buy at $290k. He thinks it can rent for $2750 gross monthly rent (about $1750 on the 3/1, and $1000 on the 1/1), but it's currently renting for drastically less (current owner lives in VA).

I've also posted this in the deal advice forum here, but I'm hoping to get an opinion from locals on this part of town.  It's definitely not an "A" neighborhood--I'd call it a "C," but want to hear from others on this area.

Thanks.

[Steve Abercrombie]

@Pete M. - I checked out this and the deal analysis thread and there are two things I would look at. 

1) The neighborhood. That part of South Tacoma is appreciating and improving, but from everything I have seen is less attractive, and therefore not getting top rents for unit improvements as other neighborhoods (e.g. Hilltop, Proctor, etc.). That said, some of the blocks that are developing better neighborhood amenities could be a good bet as the neighborhoods I mentioned are getting harder to find deals. I've been to a few properties in that Zip that were too far away from amenities and weren't deals for me based upon comp rents.

2) Legal duplex and utilities - my understanding in Tacoma is legal duplexes will be classified by the Assessor as a duplex and will be separate metered by Tacoma Power (each unit with it's own meter). There are a few considerations there. You will typically pay slightly higher interest on a duplex than an SF depending on your lender. If you are not separately metered you have a bit of a challenge with utilities. If you pay utilities as the LL it will kill your cash flow.

To pass them through to tenants it is best to separately meter them. You probably don't want to mess with getting a new utility meter in unless you are doing a legal (and potentially expensive) conversion from SF to MF. In that case you need a sub meter on the electric, water, and gas (if present). Electric is getting cheaper to sub-meter, and water isn't too horrible. If the house was SF, the question is whether it is setup so that you can sub meter effectively Same goes for the plumbing... You've got some capital cost to get there. Also think hard about getting meters that will report via the internet or a cell signal to avoid having to have them read (unless you have Prop Mgt. willing to do that bi-monthly). 

I see a lot of properties that are being rented as individual units without being legal duplexes. I usually am most concerned about the metering situation. I think buying as a SF isn't a deal breaker because of the interest rate and eventually having the exit path of rehabbing back to an SF and selling retail. I think that making tenants pay utilities without having separate meters creates some risk when you get in a rent dispute with a tenant down the road.