North Minneapolis - First Duplex Opportunity

[Ulrich Faircloth]

Hello all! So I'm in a bit of a fix. For the past few weeks I've being trying to figure out what to deal about getting my first duplex. The problem is...I'm only qualified for less than $130K for a conventional loan due to my income and lack of assets (I have no savings). As a result the only place I can really invest in right now is North Minneapolis, which is considered the bad part of the City. BUT I have two properties I am considering right now in the Webber-Camden neighborhood, an area considered safer than the lower parts of N. Minneapolis.

Thanks for the help!! I think that Property #1 is the best bet overall...just no garage. Killer. I've estimated that I might not have a tenant for five months (not in actual calculations or vacancies), considering winter is right around the corner. I currently pay $580 for my studio apartment (which just went up by $30) and roughly $20 for electricity. Not sure if my budget can survive 4-5 months with +$500 extra costs...currently only make $27.5K a year.

PROPERTY #1

One property is a SFH converted into a duplex. Beautiful home. New roof, working fireplace (downstairs unit), hardwood floors in the downstairs unit and basement (no washer/dryer though). Everything looks like its in excellent condition (no damage, visible mold, smoked units, etc). 2BR/1B for the main floor and 1BR/1B upstairs. Both units vacant; lower 2BR was rented out at $950 and upper 1BR was rented out at $750. Built in 1936, 1 ½ stories.

The kicker? NO GARAGE! Which is a real deal-breaker for me. The reason being is because I have a crime prevention business and I plan to get my car wrapped. Parking a car that has any essence of crime prevention attached to it will result in massive vandalism…so big no-no. There is a space behind the building to build a garage, but I don’t know if it would be big enough or be allowed by the City. I called them on Friday and am supposed to hear back by the 24th. For additional info, the crime maps show that there was a murder right across the street in May…

So all that aside, here are the #s:

Asking Price: $110,000 (dropped from $125K)

Offering Price: $90K (based on lack of garage, seller’s expediency, past murder, vacancies and upcoming winter, as well as what I can afford to pay per month)

Rent: $950 (once rented); Annual = $10,830 (5% vacancy)

Operating Expenses:

Water/Garbage - $1380

Gas - $106 (altogether; split between two units)

Electric (separate meters)

Insurance - $1500

Property Tax - $1,666

Repairs (if needed) - $1600

=$6252

NOI:
=$1998 Annually

Debt Service:

$7104

Cash Flow:

-$5106 or -$425.50 a month

As owner-occupant:

$592 – MORTGAGE

Utilities – $375

$6 + $150 + $139 + $86 + $50 (electric; estimated)

$1017 a month…doesn’t include repairs

PROPERTY #2

The second property is different. It is an up/down duplex. Asking price is $99K. Upper unit was renting for $750 and lower unit was renting for $720. 2-car garage, very safe area. Owner pays water, trash, snow/lawn. Tenants pay gas and electric. 2BR/1B per unit, both vacant. 2-car garage with driveway (BIG PLUS). Built in 1906. 2 stories. The one big problem? The upper unit is fine, but the lower unit…former smoker lived there. It would have to be cleaned up before renting, so I’m sure the price reflects that. No telling how much that will cost to repair. I don't have any costs from the seller on utilities, so I had to estimate.

Asking Price: $99,000

Offering Price: $85K (based on smoked unit, vacancies and upcoming winter, as well as what I can afford to pay per month)

Rent: $850 (once rented); Annual = $9690 (5% vacancy)

Operating Expenses:

Water/Garbage - $1200 (estimated)

Gas – $50 estimated (separate meters)

Electric – $50 estimated (separate meters)

Insurance - $1500

Property Tax - $1522

Repairs - $3000 (estimated)

=$7222

NOI:
=$2468

Debt Service:

$6708

Cash Flow:

-$4240 or -$353 a month

As owner-occupant:

$559 – MORTGAGE

Utilities – $563

$100 + $150 + $127 + $86 + $50 (gas, estimated) + $50 (electric, estimated)

$1122 a month…doesn’t include repairs