Hi All, Would love to get your thoughts on this potential investment - it's a duplex in Indianapolis - 68K Property is rehabbed and each unit is 3 bed and rents for $550 and $475 Asking price: 68k Yearly Tax - $536 Insurance - $600 Owner is willing to finance with 10% down at 9% amortized with a 5 year balloon payment - see my analysis: https://www.biggerpockets.com/calculators/shared/7... Cash on Cash is 21.37%, is this good? I'm still trying to understand this cash on cash return. It appears to be cash flowing $165.58 What would one do when the 5 years is up - do they owe 61,200 as the payments appear to be going directly to interest for the 5 years. I was thinking if I refinanced after a year but that would just refinance @ 70% of value so I would still owe the remainder.... Appreciate your thoughts on what you would do?

@Dolores Waldron If the asking price is the same as the ARV I would avoid it. There are plenty of wholesalers in Indianapolis that will sell a duplex with plenty of meat on the bone.

@Snehann Kapnadak Indy duplexes are good or bad but really depends on what part of town you buy them. If you avoid areas where ARVs are under 50k you can get a good duplex with a great REI. I have one right now that even if I put in a sump pump I will still be getting a pre mortgage REI of about 15%. Post mortgage it will be even better. You just have to get into the right areas. Places where rents are 500 a month are usually bad areas unless it happens to be way under rented.

With those rents I worry about what kind of a neighborhood it is in. What is the ARV of this property. I would only pull the trigger on this one if the ARV was at least 90k and it needed no repairs. I am betting this one is a 40-60k ARV being oversold by a turn-keyer. Probably not a good deal. Also, I think you have underestimated maintinance costs. Probably 100-200 a month for an older duplex with low rents. Renters tend to not take good care of them. So, that wipes out your cash flow, but even with a cash flow of 160 a month that is about 2k a year. Would it really be worth the time, hassle, and risk for 2k a year? You could get 1 renter to wipe out all those profits with one tirade. So, it is tough to definitively say without knowing everything, but I would personally pass on this deal. Brett Snodgrass has a better deal on a duplex than that...

Thank you again for all the feedback, this one has too many red flags and I will not be pursuing.

A couple of assumption you are making; 1) The seller will let you out of financing you are taking (double check!) 2) That you can get an appraisal for the property that is (68K * 90%) / 70% = 87K. Do you really think the property will appreciate about 19K (~ 30%) in one year! Even in 5 Years? Also, putting GFI's, Chimney Repairs, etc is not rehabbing. These are normal, maintenance work that probably should have been done a long time ago. Tell me that there is a new heating system, all the plumbing has been replaces and there is a new roof and then we'll start to talk. Other posters have already strongly suggested you pass. I would say RUN don't walk. Oren

Thanks Mike, these are questions I should ask..

Depends how the note is structured. It may be interest only payments, but it could also be set on a 25 year amortization schedule so you'd be paying off part of the principal each month. The remaining balance would just be due at the 5 year mark. Commercial loans work like this (but with the intent that the bank will refinance the remaining balance at market interest rates)

Thank you all, really appreciate it. On another note - if it was a good deal with the numbers is the seller financing a note at 9% with a balloon payment in 5 years good - how do you get out of this as the 9% just goes to interest only payments - correct?

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Updated over 8 years ago on 09/02/2016. Most recent reply

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Dolores WaldronPoster

Medford, MA

Real Estate Deal Analysis & Advice

Indianapolis Deal Analysis - is this a good deal?

Dolores WaldronPoster

Medford, MA

Posted August 31, 2016 18:06

Hi All,

Would love to get your thoughts on this potential investment - it's a duplex in Indianapolis - 68K

Property is rehabbed and each unit is 3 bed and rents for $550 and $475

Asking price: 68k

Yearly Tax - $536

Insurance - $600

Owner is willing to finance with 10% down at 9% amortized with a 5 year balloon payment - see my analysis:

https://www.biggerpockets.com/calculators/shared/7...

I would love to get your thoughts on if this is a good deal for buy and hold?

Cash on Cash is 21.37%, is this good? I'm still trying to understand this cash on cash return.

It appears to be cash flowing $165.58

What would one do when the 5 years is up - do they owe 61,200 as the payments appear to be going directly to interest for the 5 years. I was thinking if I refinanced after a year but that would just refinance @ 70% of value so I would still owe the remainder....

Appreciate your thoughts on what you would do?

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Edward Rhoads

Rental Property Investor
Indianapolis, IN

Edward Rhoads

Rental Property Investor
Indianapolis, IN

Replied September 01, 2016 05:08

@Dolores Waldron

You are being taken for a ride big time. The houses in that area are only worth 30-40k (I actually live not too far from that area). They are turnkeying for double its market value based purely on the rent. It is not a great area.

I would not do business with that turnkeyer. Find a good wholesaler like Shawn Holsapple or Brett Snodgrass.

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