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.

[Brandon Rindlisbacher]

@Tim Mellor, this sounds like a decent deal. It doesn't quite meet the 1% guideline, but seems like it'd produce cash flow, which is great. Sounds like it may be a little older property (I'm not sure of the age), maybe something that was built before Provo started enforcing all the current rules. It seems like you've analyzed the deal and have solutions for most of the issues. One creative thing that I've done with a single family rental in Provo is rent it to two related families. Allow me to explain... it's a single family home that used to be a "duplex". It wasn't a legal duplex and Provo enforced the rules before I came into the picture. When I got involved, the property was vacant and didn't make much sense to just rent it to one family. So we ended up finding two sisters (one was married and had a family of her own, the other sister was single and wanted her own space). The one sister's husband and the single sister were attending school at BYU and each family couldn't afford much for rent. So we were allowed to rent the home to them as ONE family (because the sisters were blood related). This allowed us to produce a nice cash flow off of the property and allowed each sister to have her own unit. This was tricky and a creative way to make the property work. It may work in your situation with each of the units having the "connected 1bd mother-in-law apartment with kitchen". Just a thought. I wish you the best of luck with this one!!