Am I crazy for wanting to tear the roof off this Duplex?

Question

Hey everyone! I've been working on buying a duplex for a few months now (crazy I know) and I'm coming down the home stretch, but when I brought up my plans to my frugal fiancé she thinks I'm crazy.

Here's the deal: using a portfolio loan, I'm buying a duplex with 5% down for 250k with a 140k rehab loan. It's taken months because this is my first rodeo and putting together the bids hasn't been easy. I want to replace the stucco siding with hardieplank and the flat roof with a 4/12 pitched roof. I also want to replace the radiant electric heat with a mini split system. Those three conversions, along with a 10k contingency accounts for about 65k of that 140k (along with manual labor from me and buddies to remove the stucco).

This place is real ugly as is (I didn't mention the mansard roof that makes it look like a pizza hut) and the exterior additions would really help curb appeal and thus rentability. Speaking of which, we anticipate being able to rent it pretty easily for 1400 per side and with the fixing up are hoping we could get 1500-1600. With everything our mortgage payment would be around 2500 per month. Not a huge profit margin but I'm okay with it because we will be living in it for a few years.

If we didn't do all the exterior work (kept the flat roof just replace it) and the mini splits and trimmed away all the bells and whistles we could get it down to about 2100 per month and still rent it for 1400. This is a better profit margin, but I'm nervous about having more problems down the road arise from the siding and the roof. I also like the idea of having a nicer home, not only for me but for the tenants I could attract. We also won't be closing until mid October (appraisals are extraordinarily backed up) and I'm nervous about doing exterior work in a PNW winter

Anyway, I'm going back and forth between both extremes here and I'm wondering what you guys think

Ian Broadie · Answer

Yes, I apologize for not clarifying that. I don't have property management included in those numbers, but principle and interest is 1700, the additional 800 a month is taxes insurance vacancy and repairs. In my market this is a steal believe it or not. Properties are very expensive and rent is cheap. I'm envious of anyone who can buy a 3200 sq ft house for anything under 400k, much less under 140k, but that's not my market. There are certainly cheaper areas within driving distance, however because this is owner occupied I'm not so much concerned with the cashflow vs it being an area I want to live in.

Ian Broadie · Answer

@Mindy Jensen It does leak is the problem. I wouldn't ever consider tearing off a perfectly good roof for no reason, but this one has multiple spots where its leaked through the ceiling. The previous landlord didn't even patch the ceiling, instead they just nailed cabinet doors to the ceiling to cover it up (which helped me a lot in negotiating when I just had to take those off). The problem is coming from 2" drain pipes and the fact that we are surrounded by trees. They get clogged and the water pools on the flat roof.

I suppose I emphasized the curb appeal aspect a little too much. My options are to replace the flat roof and the gutter system (costly) or put on a pitched roof (more costly). The way I see it, I'm paying more upfront, but because pitched roofs last significantly longer and have much less problems / maintenance (at least here in the PNW due to our trees and rain) I am mitigating headache and cost later down the road

Samuel Sadler · Answer

One of my first fix and flip mistakes was that I got emotionally involved with the project. You can't make that mistake especially in multifamily as you should view that as a business. It sounds to me like you are getting emotionally involved because the ROI should give you the answer as to what rehab to do. What return will each repair give you? Will it allow you a rent bump? Allow you to refinance and pull out cash? How will it affect your NOI? Your exit strategy? Those factors should answer those questions. Feel free to shoot me more questions.

Ian Broadie · Answer

It's funny reading these posts years later. For anyone who's following, I ended up doing the flat roof! We did a gut job and it turned out the siding wasn't leaking so we mostly just did a lot of interior renovations (still want to redo the exterior). Our mortgage came out to about $2300 and we were able to rent out for $1600 ($1750 now). We estimate our side could probably be rented for around $2400 now so when we move out it'll bring in around $4k+/month

Kurt K. · Answer

Sounds like a EPDM roof might be your best option. Leave it flat and reroof it. This way you can keep your costs down and work on other priorities. But if a roof leaks it has to be fixed ASAP.

Mindy Jensen · Answer

@Ian Broadie, if the current roof doesn't leak, don't replace it. Plenty of time later down the road to replace necessary items.

Yeah, Mansard roofs are ugly. Paint the exterior a nice color and move on. Is the Stucco in good shape? If so, leave that too. I'd much rather get slightly less rent and have significantly less work done.

Anthony G · Answer

@Ian Broadie  I feel like we really need some pictures of this place.  I from St. Louis where all of the older house have flat roofs, so a flat roof isn't seen as a negative to me.

Matt R. · Answer

I just put in a mini split. These are great options I think. I guess I would have to see pictures for the roof idea. I can understand if it can really add value but I have never heard renters say man the place was great but that flat roof I just can't rent there or I need a rent discount for flat roofs. Idk much about roofs but I think flat roofs monkeys can fix those with tar and a mop. No special skills required to maintain. Maybe just offer free flat screen TV in place of new roof.

Am I crazy for wanting to tear the roof off this Duplex?

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