1st Multi-Family (duplex) deal

[Daria B.]

Hi all,

Thanks in advance for reading my post.

I found a duplex built in 2008 that is 2348 sq ft total that I'd like to add to my buy-hold portfolio. It's a foreclosure so the bank now has it up for sale. I've only seen pictures but will be looking at it in person in a couple of days. There is a rental next door that is also the same style duplex (built by the same developer) going for $850 (1 unit in that duplex is already rented) and other sales in the area (SF) going for $89k.

It's a college town and from sites like zillow the rents look to be $850-$1.2. Trying to compare apples-2-apples so the rentals that were older homes I'm not looking to compare. Also, this is a new duplex closer to the university and other homes are further away.

After running these through some calculations this is what I came up with (does this look right?):

Purchase Price: $114 (their price, I've not determined what to offer maybe $105 for lack of appliances maybe other things I don't know about yet)

Taxes: $2323 (talked to the appraisers office to get the 2015 valuation)

Terms: 30yr 4.5-4.8% fixed conventional with 20% down

Insurance: $1000 (guessing from previous purchases, this may be too much but I can't see it being more)

Appliances: all missing from both units except 1 microwave and 1 stove. will need to purchase 2 refrigerators, 1 stove, 2 dishwashers and 1 microwave. Estimating about $3000-$5000. Priced from Lowes was $2500, but I'm padding.

PM fee: 10% of rent 

Unsure if 10% is on each unit. What is the norm for duplexes?

Vacancy: not sure what to put here

This is what I'm not sure of with my 1st year ratios:

Cap rate: 13.04% (I divided the purchase price by NOI) Now of course my NOI didn't factor in vacancy loss because I wasn't sure how to do that.

GRM: 5.51 (I divided the purchase price by the GSI)

Return on Equity(yr 1): 36%

COC: 70% (isn't this rather high?) (I divided the down payment by the NOI)

Debt Coverage Ratio: not sure how to calculate this. 

I created a spreadsheet based on reading up on the formulas and also found a few spreadsheets that did the same calculations. Putting in the same numbers, gets me varying degrees of values within a 2-5% margin. And of course if the beginning numbers aren't correct then the calculations that rely on a previous calculation or value isn't going to be accurate. Arrgh I need a good spreadsheet!!

What I found was that one of the spreadsheets deducted the PM fee from the expenses so the Total Operating Expenses differed from my calculations. I have always looked TOE as including the PM fees. ?!?

What numbers should I be looking for in the Cap Rate, GRM, and Debt Coverage ( I think this is what lenders look at, correct?)

What should I be looking at to see if this is too much to pay for this property?

Thanks again BPers! :)

[Andrew Syrios]

From what I can see, it looks pretty solid. For a duplex in Florida (which I'm not familiar with) $114K sounds good, especially with $1700/month rent, which is about a 1.5% rent/cost. In a college area is all the better. I would usually use a 10% vacancy rate for calculations unless it's a really nice area, than maybe 7.5% or 5% or if it's really rough, maybe a 15%.