Should I invest? Portland OR Duplex

Question

In need of advice! After looking (on the MLS) for months this is the best opportunity I've found and want to know if I should pull the trigger(or at least make an offer as everything goes to cash buyers these days...):

Up and Coming Duplex

2 bed 1 bath unit that will rent for around $1600 (conservative estimate)

1 bed 1 bath for $1000

annual taxes 5k

Beautiful street with walk to quaint shops and restaurants, should virtually 0 vacancy due to Portland rental market.

Rent ready(new paint, solid appliances, refinished hardwood floors, mature low maintenance landscaping ) but could improve 1 bed unit for several thousand only.

Will likely sell for around 450K+(similar property 6 months ago went for that, I offered 430K and missed out)

Should I put in an offer and for how much?

Account Closed · Answer

@Mark Davis I like to get as close to the 1% rule as possible (gross monthly income = 1% of sales price + rehab), or at least know that I'll be able to reach 1% when the units turn. That means for $2600 gross income, purchase price plus rehab would be $260k. You can find that around Portland, but you have to look hard. Also yes, you pay water/sewer, but you can bill it back to the tenants via RUBS or submetering if you want, as long as it's clear in the rental agreement. Are you going to live there? (If not, maybe consider investing outside of Portland.) Can you add value (e.g. zoning allows higher density, convert basement to living space, add a bedroom/bathroom, rent out garage separately, etc.)? Is the neighborhood already established or is there room for decent appreciation? I bought a listed fixer duplex in NE PDX in February for $224k.

Brian Knier · Answer

@Mark Davis I have to agree with the others here that you should probably pass on this one at that price. You want to calculate your offer price based on current rents not what you think it can get (because if it can get $2600, why aren't the current owners getting that?) As an investor, what you're buying is the upside of being able to force appreciation of this asset by raising income and reducing costs compared to its current state. If you calculate your offer price based on the projected income you'll get once you've made your improvements and turned over tenants, you're essentially buying the property at the price it should demand with those improvements made and higher rents coming in. Then your only upside (since cashflow is minimal here) is straight market appreciation, which most people on BP will tell you is not a good long-term investment strategy. (See 2008) With current below market rents and $430-450K pp, this would result in a rather high gross rent multiplier. (GRM=Price/current gross annual income). Even if the units were already renting at the market rates you estimate, I don't think this one pencils out as a non-owner-occupied investment. I suspect the seller here is just riding the sellers' market we have going here and putting it out there at really high price. Unfortunately for us buyers, they'll probably get it. But maybe not. Keep an eye on it and see if ends up coming back on the market at a reduced price. In the meantime, keep looking. Like @Dani Z. said, a decent deal in Portland does occasionally get listed. And if you do what @Neal Collins suggests and track details on recent listings and sales, you'll be set up to jump on it when it does. I've found that you can often see more property details including current rents on Redfin listings that other places. I suspect they may pull info from the more detailed agent mls listing data. (Or have your agent send you lots of recent comps) Recent sale prices along with their current rents can help you calculate the prevailing GRM for small multifamily properties in the areas where you're looking.

Neal Collins · Answer

@Mark Davis This underscores the importance of education and local market knowledge. Without much to go on besides the bed count and a rental estimate it's hard to know if you should have moved on it. What if your rental estimate of the 2BR was low by about $600/month? What if other duplexes in the area are going for $625,000? All these things needed to be considered and then weighted out against your strategy (and by the way, prices like that do exist in that neighborhood).If you've been looking at for sale places for months on the RMLS then start also combing the rental market on Zillow or Craigslist to see what places are renting for with price per square foot and condition being the main aspects. That way you will be able use an internal heuristic gauge that you've developed through awareness and education to get to a point where you can make solid judgement calls.

Ellie Hanson · Answer

Here in PDX we pay for garbage only not water / sewer. If you can't have separate meters or a sub meter then you'd just pro-rata the water bill and have it reimbursed to you. Don't buy that unless you plan on living in it. That's a crazy price. I agree it's a stellar part of town but you'd wait so long to get your appreciation out of it. You're better off buy and hold in Lents. Buy low and rent out for much less but don't do any repairs. In 3-5 years when the area turns do your repairs and rent for more or sell. Montavilla is for living in or flipping only at this point.

Account Closed · Answer

@Lorin K. The vacancy rate is the average amount of time units sit vacant per year. In Portland depending on neighborhood it's around 3% to 4%, which is relatively low. I imagine a realtor who works with investors in your area would know, or maybe even googling "vacancy rate (city state) 2016" would yield results.

Lorin K. · Answer

Dani,How do you calculate the Vacancy rate for a region?

Conor Hesch · Answer

Hello @Mark Davis I used a Conventional with only 3% Down and No Mortgage Insurance to buy my first Duplex in MN a few months ago. It works in OR too. Might help you save some cash to improve your monthly calculations (30yr fixed and the payment is way lower than FHA). You can message me if you want a lot of specifics.

Mark Davis · Answer

Thanks for all the input. Much appreciated.

Mark Davis · Answer

Thanks for the advise. Property in Montavilla, offers reviewed today. Will be interesting to see what goes for. Definitely room for appreciation but I agree is pushing it. I wasn't aware have to pay for water/sewer and don't know what RUBS is...I'll keep researching and looking for closer to the 1% rule!

Justin Bieler · Answer

With a deal like this you could be treading in some pretty deep water @Mark Davis! Really think long term, there are other deals out there. What part of town is this deal in?