I wasn't gonna tell anyone, but I closed on my 2nd duplex today.

[Account Closed]

I closed on my second rental property, another duplex, today.  It was a listed property, paid for in cash.  

This is also my first partnership, with my significant other and also RE agent. I paid 80% (from a LOC on my first duplex) and he paid 20% (from savings and stocks).

He doesn't have experience managing property but I do.  He didn't take a commission on the sale and I'm managing the property in exchange for his commission.  At least, for now.

It's a fixer.  Asking was $250k.  We submitted our cash offer for something like $222,218 (and no buyer agent commission) on the first day it was listed.  Seller countered for $243,750 (essentially the asking price because she's not paying a BAC).  We accepted because we hadn't been able to see the inside of the units and didn't know the condition, so it's kind of hard to negotiate until then.  

Once we walked through with our inspector, we realized it would need a lot more work than we originally thought.  We originally budgeted about $25k for rehab, but using J Scott's estimating rehab book, I came to a $65k rehab, and that's using investor-grade contractors and IKEA/Home Depot stuff.  

I itemized our initial expected costs and compared them, line by line, with what I expected the actual repairs to cost.  (I was conservative, from the seller's point of view, about the cost of repairs.  These estimates are not for a high-end remodel of any sort.).  Then I calculated the difference between initial expected costs and "actual repairs needed," which came to be $42,673.  We probably should have countered with our initial offer minus this difference, but I could tell my RE agent partner was really apprehensive about doing that (Portland is a hot market, and for a listed duplex in close-in NE Portland, $201k is pretty low . . . ) so I split the added repair costs in half on a line labeled, "buyer's share of unexpected costs."  This came out to a revised offer of $222,414, which was only $200 higher than our very first offer.  

While waiting for the seller to respond, I started to second-guess myself, thinking that I should have countered less. I told my partner, "I'm not inclined to pay any more for that property if the seller counters back."  In his more diplomatic way of communicating than mine, he let the listing agent know that this was our best offer when he presented the counter.

Then we waited.

Then the seller accepted the offer.

We have a lot of work to do, and I'm still crafting the new leases to be both equitable yet firm. The current tenants have been there since 2012 without a rent increase($695/month each for 2br/1ba units).  Meanwhile in Portland, rents have been going up 14% year over year in some neighborhoods. I have been studying new city ordinances to make sure that I follow the law; tenants now require 90 days' notice in the City of Portland to ask them to leave or to increase rent more than 5% over 12 months. Market rent for these units, after repairs, is probably around $1300 per unit.

I put together a long list of local resources for homeownership programs, rental assistance, transitional housing, and low-cost apartment complexes and plan to give them to the tenants tomorrow, along with a new lease to sign that raises rents to the HUD-listed fair market rent of $1208 by 6/1, along with a couple other options (so they have a sense of control in this process) that give them $700 if they want to move by 3/31 and $300 if they want to move by 4/30. This is by far the worst aspect of landlording. I hate pushing out families, but if it wasn't me, it would be someone else who probably wouldn't offer them free money or resources to do so. Sigh.

Here are some of my calculations from the proforma with rents at $1200 for each unit, accounting for repairs at $70k, and eventual refi debt service at 75% loan to after repair value and 4.5% IR.

Now comes the fun part!  My first partnership with my partner, and a whole lot of rehab goin' on!  

Advice/suggestions/kudos/constructive criticism/questions welcome.