Duplex analysis

[Adam Pearson]

Hi all,

I'm hoping you can give me some feedback on a deal I'm currently underwriting.  The property is an early 1900's duplex (one up/one down) in Mount Vernon, WA, within walking distance of the very popular Co-Op and historic downtown.  The high school and hospital are also within walking distance, as well as other medical employers.  It's very convenient to I-5 for commuters, as Mount Vernon is also a bedroom community for people who work ~30-60 miles south.  This is an off market deal.

Price: $200,000 + closing costs = ~$206,000 (market value is ~$235-240k)

Current rents: $1,675/mo (slightly under market, potential to get over $1,800)

Opex: $710/mo

-  Mgmt: $167/mo (10%)

-  Taxes: $200/mo

-  Utilities: $150/mo (seller currently pays W/S/G -- possible to bill back a portion)

-  Insurance: $70/mo (estimate)

-  R&M: $83/mo (estimate)

-  R&M Reserves: $40/mo (estimate)

NOI: $965/mo

Mortgage: $800/mo (20% down)

Cash Flow: $165/mo (~$80/unit)

Needs capital investments of ~$15,000 for new roof/gutters (3-5 years), 2 hot water tanks, and new electrical panel.  NOTE: This property has a post & pier foundation, so there could be some repair needed, or I could look to put in a concrete foundation down the road ($$). A local broker confirmed that there aren't usually financing/insurance issues with post & pier foundations in our area.

Not a stellar deal, but seems good for this area (you don't see many 1-2% deals in this neck of the woods).  I've underwritten many, many deals in Mount Vernon, WA over the years, and in particular I've watched this property closely as it was on/off the market several times through the recession.

I'd really appreciate thoughts on the deal, post & pier foundation, renting out that era of house, etc.

Many thanks in advance!

Adam