Duplex - 40k - Underestimating repairs?

Question

First deal, I'm sure I made some mistake, thus the post!

Duplex - C Neighborhood

40k - Purchase Price - 25% Down ~10k

4k - Closing

6k - Roof Repair

1.7k - Misc Upfront repairs

Monthly Expenses/Income

Unit #1 -  $450 - Currently rented

Unit #2 - $450 - Vacant

157.40 - Mortgage

129.17 - Taxes

90 - PM

60.42 - Insurance, although this might change

66.67 - Water

90 - 10% - Maintenance and Capex

90 - 10% Vacancy

45 - Lawn Care/Snow Removal

Net Income - 171.35

The initial inspection showed a few issues, biggest ticket item being the roof which I was already aware of so I decided to proceed. Insurance company that first gave me a quote decided to not insure the property due to it having 60 Amp service and Knob and Tube wiring. So I'm currently shopping around for another insurance and I'm not sure if I should now add the electrical/upgrades to the list of repairs on the home. As it is now at least the property cash flows.

Should I include the costs of upgrading the electrical in the deal analysis? This was something I hadn't even considered at the beginning (because I'm a newbie and didn't know to look for it). Seems like it's something I'll have to do eventually to make the house easier to sell down the road. Or maybe it's unnecessary?

Also the house was constructed in 1900, so is 10% too low for repairs and capex?

Any feedback is greatly appreciated! Thanks! :)

Dyanne C. · Answer

@Eddie T. I've considered it. I would like to invest locally in the future, however right now Miami is over valued (in my newbie opinion of course)

I don't know anyone in Orlando who could work with me and manage the property for me. Plus insurance is so high in FL that I found it difficult to make the numbers work for most of the property I found.

Eddie T. · Answer

@Dyanne C. If I were in your shoes I would be investing in Florida. If you cannot find any deals in Miami I know that orlando is a great market to invest in. Owning a property at such a long distance will put you at a disadvantage. Have you tried looking in Florida?

Colleen F. · Answer

Add the cost of updating electric for sure.  It may be an issue to find insurance with knob and tube.   Also it may cost you more, I could not say for sure but I know that we had fuses and the insurance company would only insure if we agreed to upgrade to breakers which we planned to do anyway so it was a non-issue.

Ken Martin · Answer

Do not invest in a property 1,500 miles away. You have no control over it. Save your money and invest where you live. From Miami, look north and west to find more affordable property. Also, I would caution a new investor about buying anything 100 years old. It may contain many hard lessons.

John Kent · Answer

Dayanne, insurance isn't a big issue in inland Central Florida unless the property is older construction. I am located in Orlando feel free to contact me if I can be of help.

Dyanne C. · Answer

@Eddie T. Thanks I'll look into it. :)

Eddie T. · Answer

@Dyanne C. How long have you been looking into purchasing rental properties? it took me a year before I bought anything. Before you purchase something 1000 miles away make sure you have checked big cities in florida. I am sure insurance is high in some cities but some cities that are not costal may have lower insurance rates. Listen to this podcast :

http://investfourmore.com/2015/12/podcast-26-how-t...

Dyanne C. · Answer

@Eddie T. Property is located in Ohio.

Eddie T. · Answer

@Dyanne C. What city is this property located in? Are you not investing in florida?

Donny Widjaja · Answer

@Dyanne C., I can't speak for your market on how fast you can get your money back, but buy and hold strategy is certainly not going to be a quick money making deal.  Most people keep rental for the passive income (cash flow).  However, if you get can all initial investment within 10 years, I think that's a good deal.  You've done something right for sure. :)  Anyway, what's your goal for the rental?  passive income, or high appreciation property?

One of my rental, needed a major repair such as foundation and termites.  So, we ended up with bathrooms renovation, bringing electrical to new safety code, and plumbing to new safety code too.  It cost me $40K, so I won't make my initial investment back in 30 years.  However, my goal from the rental is passive income, so as long as it is bringing cash flow, I'm happy.

My next challenge is to actually learn to buy properties with no or low money down, so I can get my initial investment back in a shorter time.

Duplex - 40k - Underestimating repairs?

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