Deal Analysis Request- Duplex in Class B/C Neighborhood

[Eric Risi]

Hi all,

New to the forum as a member but I've been reading up quite a bit lately and can't overstate how much I value the collective input on the site. I have a potential investment in mind and wanted to share the numbers in the hopes of getting some advice and a sanity check from the community. Thank you all in advance!

*If you want to skip straight to the numbers, please ignore the next paragraph*

The property is recently built (2000s) two-level duplex with a total of 3,000sqft that is reportedly in good condition but I haven't had a chance to tour it yet. It is currently occupied by tenants paying 800/month. I'm still learning the jargon and evaluation techniques, but I'd say the neighborhood is somewhere between Class B and Class C. It lands somewhere between blue collar and middle class demographically and is on the outer fringes of an area that is seeing tremendous growth and appreciation, although if you continue on further from that center you will hit some very, very rough neighborhoods. Occupancy rates are high, cash flow seems good and there seems to be a good chance for appreciation.

The NUMBERS:

Knowns:
Purchase price: 140,000
Current rent: 1,600

Estimates:
Taxes: 327.83
Maintenance: 250
Mortgage (@10% down): 724.08
Holding costs: 0
Repairs: 0
Closing Costs: $10,000
Average monthly rental (@8% vacancy rate): 1472

Explanation of estimates:
-We're talking about putting 10% down because we have other sources/uses of cash. Happy to take commentary on this, but this is not the main issue here.
-0 holding costs: tenant occupied, but will verify leases if offer is accepted
-0 repair cost (thus no need to calculate ARV): again, tenant occupied, will ascertain during walk-through whether improvements are needed.
-closing costs: is this a good guess? If so, total purchase price at list would be 150k.
-For maintenance, I applied the greater of $1/sqft and 1% of purchase price (excluding closing costs) and divided by 12.
-For taxes, mortgage rates and vacancy, I applied standard, conservative numbers.

First off, I applied the 50% rule at 0% financing. Looks like the property is just shy of meeting the rule (736-804= -68.53). Not bad, but I hear the rule is often an ideal rather than a practical reality.

The absolute monthly rents come in at 1.1% of purchase price, closer to 1% if you factor in closing costs. Not 2%, but also nothing to sneeze at based on my reading on this forum.

Don't know what to do about ARV as I can't really find comps and we're projecting $0 in repairs.

Based on these figures (as plugged into the hybrid investment calculator recommended and available for download on biggerpockets), I'm showing a monthly net cash flow of $95, which is close to the golden calf of $100.

Questions:
-Why would the seller be looking to unload the property if it is cash flowing like this? Is that a red flag? Note that the property was foreclosed upon and bought by the current seller at just a 10k discount to the current price, so it doesn't seem like the seller will be netting hugely on appreciation. I'm naturally looking for another, darker explanation.
-Do you ever simply pay the list price if the property meets or nearly meets the idealized metrics and cash flows at $100/mo based on realistic numbers? There is a dearth of MUs in the area and the market is really heating up, so any aggressive attempt to score a deal might result in the loss of that deal. In my own response to both this question and the former, I wonder what role the fact that the property is located in what is generally considered to be a "slummier" yet up-and-coming area has on the analysis. How low do you bid if you think the property already makes sense and there is the threat of investor competition?
-Do duplexes appreciate in the same way that SFRs do? I would expect, but would not count on, a growth rate of 3-6% for the latter.

Sorry for the epic post. Lot's of questions are swirling around as I'm still learning...already indebted to the community for getting me this far, but will be even more so when/if I get some feedback.

Thanks!

Eric