My next hold deal? Huge Duplex in Provo, Utah

[Tim Mellor]

I recently had an owner of a duplex approach me (because I own a rental property in the neighborhood) to see if I wanted to purchase his property.  The asking price (without agents) is $385k.  Each unit of the duplex has 6 bed & 4 baths, has a two car garage, and has about 2400 sf.  The units rent for about $1800/mo each (and both are occupied) with utilities included (utilities are about $700/mo for everything - I would probably want to change this so tenants pay their own utilities - Electric & Gas are metered desperately).  The owner isn't willing to do seller financing.  My loan guy said I could get a loan with 25% down at 4.25-4.375% 30 yr and have a monthly payment around $1700/mo.  So the cash flow could be potentially pretty good.

Provo is a good area with two nearby colleges.  In my duplex, one side is rented by students and the other side by a non-student family on Section 8 Housing.  Provo does enforce zoning to three unrelated individuals per unit, but enforcement usually only starts with a complaint from a neighbor.  The home was originally built with four units but the city said there wasn't enough parking (so each 5bd unit basically has it's own connected 1bd mother-in-law apartment with kitchen and everything).

Here are a list of my concerns: 1) Deferred maintenance  (a lot of vinyl flooring in bad condition, original roof may need to be replaced in the next 5 years, etc...).  2) Fewer units make vacancies, or a bad tenant causing damage very costly. 3) I don't have the cash for the down - I either need to find a partner or sell or refinance an existing property.

To address some of these concerns: 1) I have a handyman I've used for years who could hammer these things out on a schedule that I could afford.  2) I've never had an issue keeping my unit occupied (I've even had the same tenants in one unit for over 6 years).  3) I've never partnered, but I'm willing to do so now if I can find the right person.

Please share your advice!  Love BP and it's awesome members who are so willing to share.

[Tim Mellor]

I went ahead on this purchase and it just closed. We ended up bumping up the price to include sellers concessions and an agent commission. And it still ended up appraising for a decent amount more than purchase price. I realize that including the commission may be counter-intuitive financially since I'll now have to pay income tax on that amount, but it does allow me to get some instant cash that I can use to hold in reserves, perform repairs, or start paying down the HELOC I used for the down payment. I'm at a 4.5% 30 yr fixed with only 10% down. It doesn't quite get the 1% rule at only .8% but it really is decent for the Provo Utah market.

I'm getting the tenants to move Electricity & Gas into their own names, and offered additional services to try to increase cash flow.  This definitely isn't a home run, but hopefully a stepping stone to even better deals in the future.