Deal Analysis Feedback for 1st Rental Property (MN duplex)

[Keith Linne]

Hi Everyone!

I've been lurking on Bigger Pockets for a year or so, and cannot praise the site, and everyone's input/discussion, enough. It has been an incredible learning tool, and has really helped expand my overall knowledge base of REI.

I am from the Minneapolis, MN area, and I started in RE as a traditional Realtor (spring 2011), and then moved into full-time property rehabbing (flipped roughly 20 single family homes from 2011-2014). 

Toward the end of that rehabbing phase, I earned my MN Residential Builder's License, and I now work full-time as a General Contractor (almost 100% interior residential remodeling).

After tons of reading, property analysis, saving, etc, I'm ready to pull the trigger on my first investment property.

I recently came across a duplex that seems intriguing (analysis below). Monthly averages for utilities/taxes have been verified with the appropriate parties, and I'm running 10% allowances for management (verified), vacancy, and CAPEX. Overall, I've tried to be quite conservative, so I don't run into financial nightmares on my first property.

I'm planning to buy and hold the property in an LLC. As such, I'm assuming 5% interest and a 25% DP (awaiting verification from a local bank I have a good working relationship with). One concern (also in the works) - will a bank typically finance a mortgage with a balance below $50,000?

Up/Down Duplex (2 units, 2br/1ba each) - neighborhood is B-, but close to where I grew up, so I am comfortable with it.

$65,000 purchase price 

$16,250 down payment (25%)

$4,000 estimated repairs (both units are in great shape, but I like to be conservative)

$4,000 estimated closing costs

Cash to Close: $14,250

Monthly Rent

Rent $650/unit (based on research, the market supports $700 - $725/unit)

Gross Monthly Income: $1,300

Monthly Expenses

Taxes - $135

Insurance - $100 (estimated - awaiting confirmation)

PM - $130 (10% of gross rent - may manage myself, but would still need to account for my time)

Vacancy - $130 (10%; however, the market is currently very high demand <2% vacancy overall)

CAPEX - $130 (10%)

Rental License - $15/month

Gas - $80/mth 

Water/Sewer - $70/mth

Garbage - $25/mth

Electric - $0 (tenants pay)

Monthly Expenses: $815

Monthly NOI: $485

Mortgage - $265

Total Monthly Cash Flow: $220

DSCR: 1.83

CoCR:  10.89%

After purchase, I think there are a few value-add opportunities:

(1) Have water/gas metered separately, and pass all utility costs along to the tenants. This would reduce overall variability of monthly expenses, but would also cause my CoCR to take a hit if the work was completed up front.

(2) Aim to achieve $725/unit in monthly rent (the current leases expire in June 2016)

(3) Appeal the current property tax valuation (currently assessed at roughly $90,000). 

If you have I moment, I would greatly appreciate your thoughts on the above property, the things I have missed in my initial run-through, and any additional metrics it would be smart to consider when analyzing deals moving forward. 

I'm excited to purchase my first buy and hold property and begin building a portfolio, but I want to be certain I'm adequately matching the up-side of each investment property with its associated risk.

Thanks in advance - I look forward to hearing from everyone!