What do you guys and gals think of this one

Question

$130,000 purchase price for 3 bed 1 bath duplex

$1425/mo rent total

$2290 for taxes

$780 for insurance

$590 for P & I

Plan to put 10% down with seller financing at 4.5% with 30 year amort and 5 year balloon.

Tenants would pay all utilities and do snow and grass

I figure 8% vacancy and 10% maintenance reserve should cover things.

What would you do?

Elizabeth Colegrove · Answer

Here is how I look at a deal.

monthly income - expenses = net income/downpayment = cash on cash return cash flow

net income + principle pay down / downpayment

This is what I look at to establish whether or not it is "worth" it.

Rob Donovan · Answer

Thanks for all the feedback everyone. I think I am going to go for it. It may not be spectacular but it looks pretty solid. I will try for my home run next

Kyle M. · Answer

I've heard people say on this site that they are looking at +200 per month in cash flow on duplex's.  In all honesty, go on to the next step with this one.

Rob Donovan · Answer

@Michael Noto what do you think I should be shooting for as far as cash flow? What kind of cash flow would make you jump at this place?

Rob Donovan · Answer

This is probably a low B unit on the good side of town. Everyone wants to be in this location. The building is 1960's ranch with garages and separate laundries in basement. No major items are near end of life expectancy. The rents according to my realtor could be up to $900 per side once the unrehabbed side gets a little attention.

Not talking major gut job, just flooring, paint, and maybe shower. Tenants do snow removal and mowing. Newer 3 bedroom apartment units less than 5 years old are going for $1200-$1500. A 3 bed SFR about the same age goes for $900-$1400.

Michael Noto · Answer

Not a great deal cash flow wise for sure.  What type of area/class are we talking here?  If we are talking class A it may be viable.

I didn't realize the property taxes were so high in Iowa either.

Dustin S. · Answer

@Rob Donovan

I am in the same boat as Rick deals like that don't come around like that in my area. If your numbers are correct. It looks like a great deal but as someone mentioned earlier if you have a big ticket item(A/C, Roof, Water heater, etc) nearing the end of its life you need to account for that. Also you may adjust your Vacancy and Maint depending on the property and location if you have and "A" Property you should be ok with the 8% and 10% if you property is older a B or C property I would push both of those up. Also a bad area or and area that might caused more maint needs attention, you mentioned snow. Where I live I use 10% for maint and its 60 to 70 degrees all year round and rains maybe 5 days out of the year. Also I would verify all your numbers from multiple sources especially the rate you can rent it for. If it still makes sense go for it.

Good Luck

Rob Donovan · Answer

Thanks for the responses guys. It has a new roof and one side is pretty much fixed up. Side two needs some work, but the renters have been there for 20 years and don't sound like they are going anywhere. I see all this talk about 2% rule being the goal, but I don't think that is possible here. I am sure  I could do better as far as numbers go, but then I would probably be investing in an area I wouldn't want to be. I figured 10% for management also which brought my cash on cash figure to 18.21%. Didn't think that was too bad. Sure would be nice to get the 2% rule to work. Wouldn't take long to be diving in the piles of cash like Scrooge McDuck, Cap rate is only 7.28%. What do you think is a decent number? I would especially like to hear from people in my area. Maybe I will have to start looking a little further outside my area.

Kyle H. · Answer

This post is right on.  I would buy this up in a second.  However, make sure you don't overlook capital expenditures.  If you need a new roof asap, this could kill your cash flow for a while.  Be sure to look into the larger ticket items and budget 5-10% for capital expenditures.  Other than that, looks good.  Nice find.

Rick Ramus · Answer

In my area, I can only dream of a deal like this. I'm looking for more properties now, and to generate a rent of $1400 or more, I'm looking at $200k properties at a minimum. Although taxes here are about half as they are in your area, it's still a no-brainer deal for me, unless there is some kind of red flag regarding the property itself.

What do you guys and gals think of this one

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