My first duplex, is this any good?

Question

There is a fine line between analysis paralysis and doing something stupid. Advice would be much appreciated!

Duplex in Albuquerque. 1900 total SF, each unit 2 bd 1 bath.

Asking price is $128,000, realtor thinks he can get seller to "come down to $120,000" (I can't wait to see his face when I tell him my highest offer). Sat on market 100+ days and is currently unlisted. Both units currently under lease at $700 per. Both units recently renovated with new carpet, paint, countertops, tile. From assessor I am seeing $2480 taxes and have an insurance quote at $857. Landlord pays ~$100 per month water only.

Not sure how to proceed. I think I could increase rent to $750-$800 per but I don't dare plan on that and would have to wait for current leases to expire anyway. What should I offer? Or should I walk away and keep looking? So hard to find multi-family around here and single family do not cash flow at current market rates for rent!

Nathan Yaun · Answer

Take this info with a grain of salt but sites like rentometer.com can help judge current rental rates and therefore the GRM if any of those places are also on the MLS or were on there recently.  The data can be out of date though or high because landlords go on there to see if their rent is to high.  If your really serious you can pay an agent to do an analysis for you.  It would be worth it even if you don't buy becuase the GRM that they come up with can be applied to all places in the area.   A free option would be to use your sellers agent to get you the rents for the places you want to compare but the GRM will be high because the seller is planning on being talked down off the asking price.  The GRMs for the Milwaukee are are between 90-105 times rent.  Last but not least you can use the BP calculators.

Brent Coombs · Answer

@Brock Wiberg, you said: "I can't wait to see his face when I tell him my highest offer". That does not sound like "analysis paralysis" to me, unless you DON'T give him that Offer! Your conservative approach should serve you very well, so long as you are REGULARLY putting in conservative Offers on MANY properties, rather than being tempted to be less conservative on one particular property by trying to second-guess the Seller and coming up with excuses to increase your own Risk. "Cast thy bread upon the waters"...

Ricco R. · Answer

Im in Albuquerque and recently purchased a triplex a few minutes from base. I would suggest looking at values in the neighborhood to see first off if the price is good. 100+ days would make me think something else is up besides the price. Also, since this was my first triplex purchased I fell in some pit holes. Make sure you get lease agreements if available. The previous owner of the triplex I brought gave me an excel sheet with numbers and said this was how he maintained the tenant accounts. Also, tenants may keep quiet just to give you all they're problems when the deal is closed. I have also witnessed this lol. I would assume the landlord asked his tenants to keep quiet or not mention any repairs to anyone who may show up to the property. But through all of this I am still having fun. Learn from your mistakes and do better next time...

Brock Wiberg · Answer

Thanks for the reply!

So maybe I am too conservative. Based on your experience, can you critique my assumptions in my initial analysis below?

Vacancy 8% - I figure each unit vacant one month per year. Hope for the best plan for the worst kind of thing.

Maintenance/ Repairs 7% - $98 bucks a month for this and that. One visit from a handyman every other month burn this up won't it?

Cap Ex 5% - I figure this is a minimum to put away for the big items you know are coming...eventually.

Management 10% - While I plan to manage the place myself, I also want to be able to hold indefinitely and know that if I take my REI where I plan to I will eventually remove myself from property management.

Assuming the same 25% down and financing with a  30 yr fixed @ 5%, I get ~$120 monthly cash flow (not even my minimum of $100 per unit). Plus, I've heard the rule of thumb that you should get $100 per door per month assuming 100% financing (in which case the cash flow is negative). Maybe that rule of thumb is unrealistic. I don't know. Thoughts?

Pat Parrillo · Answer

not knowing the market and just looking at the numbers I say it looks like a good deal.

Speaking to GRM, cash flow, cap rate etc. numbers look good and here's what I'm seeing from a quick snapshot:

Using the numbers you provided and assuming you are putting 25% down and an assumed vacancy rate of 10% and I threw in about $800 yr for updates and repairs to play it safe I see this property kicking off about $385-$400 a month. Not bad. That's about GRM of 7, 8.5 cap rate and cash on cash of 14%.

Water seems a little high for me but I'm from WI where waters cheaper. I'm at about $30 a unit and looks like you're closer to $50. If you can transfer some of that cost to tenants numbers look even better.

So let's say you do raise rents to $750 like you believe you can (and do check Rentometer to confirm) you're indirectly eliminating the water bill. Here's the numbers 9.5 cap, CoC 18% about $500 mo cash flow. I like those numbers if it's in a good location and a more passive investment. There are always properties that may kick off more cash flow but I invest with good returns and low hassle vs great returns and have headaches everyday. Don't know your strategy.

So overall I like the numbers and sounds like a good deal just need to determine if you feel it's a good long term play in that neighborhood and what comp rents look like.

Best wishes!

Brock Wiberg · Answer

Just north of I-40 near Juan Tabo. Plenty of other rental properties in area.

I am trying to piece together a GRM for the area but I am wishing I had access to the MLS. Presently, I am having to scour listings that may or may not include current rents and of course GRM should be based on sale price rather than asking price. The three closest rental properties are LISTED at GRMs of 9.2, 8, and 5.4 (all fourplexes).

It's tough being in this game without having your license. Any advice for coming up with a GRM? I am not even sure my current agent will be familiar with GRM if I asked him to pull comps and find it. Plus, even if the list price of the duplex in question is fair relative to other GRMs in the area, it would need to cash flow to be an attractive investment.

Kendall Bailey · Answer

Im not sure of the real estate market in your area. If the comps check out for a duplex and the rents cash flow more then your mortgage and monthly expenses. I would consider the investment

Matt Gee · Answer

what part of town, that would be a big difference to me. That seems good for a duplex in abq, as I don't see too many.

My first duplex, is this any good?

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