First Purchase Duplex Deal Advice in FL

[Matthew Dunn]

Dear Fellow RE Investors!

My first post here on BP but I have been reading and lurking so much info on buy and hold rental property strategies for the last few months.

I'm based in SW Florida and am interested in SFRs and MFRs. I viewed my first MFR yesterday a Duplex which is currently rented with long term (10+years) tenants at $600/unit. They've not had a rent raise in 3 years. I am considering making an offer but would like a second pair of eyes on my numbers to get some feedback. Here is what I have:

MFR Duplex built in 1979, two bed one bath per unit. MLS# A4164847. Asking price $144,000. Current owner purchased in 2014 for $85k. The neighborhood I'd say is a class B-, there is new construction going up across the street and the comps range from $120k - $150k over the past 12 months in this area.

In terms of what I think it needs to rent stronger would be, new interior doors, facelift the kitchens, appliances are good and new interior paint. Bathrooms are less than 1 year. Roof is around 10 years old, and in good order. Window mounted AC units are around 1 year old. Water heaters I’m not sure of age. Structurally the building is sound. I figure a tidy interior rehab of around $10,000 is all it needs. I could leave it ‘as is’ but I feel the rents are too low as comparable units are $750-$850 in this area. I have been pre approved for the loan at 4.5% and 25% down. I plan to manage the units myself.

I’ve done two sets of calculations, first set is assuming I pay the asking price and leave rents at $600

Asking Price $144,000 Rehab $10,000 Closing costs – tax & insurance = $4905 Down payment $39750

Potential gross rent $1200/mo $14400/yr

Expenses:

• Taxes $1259/yr

• Insurance $1000/yr

• Garden upkeep $600/yr

• Vacancies 5% $720/yr

• CapEx 5% $720/yr

• Repairs 5% $720

Expenses $5019/yr $418/mo

Mortgage to include: asking price + rehab + closing costs = $159000 ($604/mo)

Total expenses = $1022/mo

Cash flow = $1200-$1022 = $178/mo ($2136/yr)

Cash on cash ROI = $2136/$39750 = 5.4%

This below calculation assumes I pay $120000, and increase rents just a little to $700/mo.

Asking Price $120,000 Rehab $10,000 Closing costs – tax & insurance = $4905 Down payment $33750

Potential gross rent $1400/mo $16800/yr

Expenses:

• Taxes $1259/yr

• Insurance $1000/yr

• Garden upkeep $600/yr

• Vacancies 5% $840/yr

• CapEx 5% $840/yr

• Repairs 5% $840

Expenses $5379/yr $448/mo

Mortgage to include: asking price + rehab + closing costs = $135000 ($513/mo)

Total expenses = $961/mo

Cash flow = $1400-$961 = $439/mo ($5268/yr)

Cash on cash ROI = $5268/$33750 = 15.6%

Some questions I have in general, is 5% enough for repairs? I know I do not have management down as an expense and I probably should since I should be paying myself right? The lower calculation does still cash flow well with an added 10% management expense.

Am I missing anything?

Ultimately I'd like to BRRRR this property but the market is so hot here right now I'd need to offer $100,000 or less to make the 70% rule. I can certainly try this offer but I'm fairly certain it won't be accepted. $120,000 however I feel is a fair offer.

Thanks guys,

MD