Looking for advice on a buy and hold duplex in PA.

[CJ Witmer]

A long time friend is looking to cash out of his duplex rental property to get away from tenants and pay off his primary home. He has it on the market now for $95k. He said he'd sell to me for $60k. - Property grosses $15,400/yr - 2 units at $625 and $675/month - He has all receipts and is happy to share - Owner pays for heat, all other utilities paid for by tenants - Furnace is old and will soon need replaced - Electrical is older but he said "doesn't need attention immediately. - New warranty on roof transferable to me - Besides electric and furnace, he says it should be turn key - Could use some paint - I used the BP Rental Property Calculator and even figuring in $65k (instead of $60), lower rent, painting, lawn care, CapEx for furnace ($4k and redo electric at $8k) and a few other cushions, I still come up with about 13% ROI. What am I missing? Happy for any and all input! I had another friend who has 5 rental properties who looked at the website and said it'd be a good deal, even at $95. Then I told him I could get it for $60. He said if I don't buy it he will (although I know he wouldn't do that). I plan to go through the house whenever my friend is in town. What do you guys look for? I know nothing about electrical! Please go easy I'm a newbie, but this seems to have "deal" written all over it and I don't want to get stuck in analysis paralysis!

[Jason Krick]

I can certainly see you are excited, and it looks good on the surface. There are two things I will suggest for you.

The first is to VERIFY everything. He is a friend, so I understand the desire to take his word on everything. If landlord pays heat, ask to see the bills from the precious year. Look for any signs of deferred maintenance, that can increase acquisition cost quickly. Things like appliances, condition windows, carpeting, painting, etc. Also, do you know his historic vacancy rate, and can that be verified?

The second is to ask yourself what his motivation is and why it's so strong. If this deal is that amazing, why isn't he sitting on it and reaping the rewards? Are there issues with tenants rent payment history? He wants away from tenants, you said. Are you prepared to deal with the problems that an experienced landlord decided he no longer wants to deal with? Why do you think he is basically giving you a $30,000 gift? I have friends I will go through the fire with, but I don't think they would give me $30,000 just for the sake of getting out of a property.

I'm not trying to discourage all the enthusiasm, but this is business, with real money at stake. You need to treat this as such. The friendship makes it more complicated, in my opinion than easier. What if you buy it, and then find structural and plumbing issues to the tune of $20-30,000 that he didn't disclose? Will you ask him if he knew about it? Accuse him? Are you prepared for how that can affect a friendship? Just remember to take all things into consideration and assume that things may turn into worst-case scenario. Then you will be prepared.