Please advise on my first multi-family

[Santosh P.]

Hi All,

I am in contract with one small duplex in Bakersfield CA area(zip code - 93305) and need some guidance from expert investors to see if these numbers make sense.

Offer Price: 100k (1bd/1ba and 2bd/1ba) - 1500 sq ft duplex
Current Rents: 495+650 = 1145 per month
Expenses = $500 pm
(Maintenance, Property management, real estate taxes, replacement reserve, Insurance)
Mortgage (Interest + Principal ) = $405 pm
Cash Flow = $240 per month
CoC = ~ 10%

There is deferred maintenance of $10k-15k on the property which I might negotiate to split 50-50 with the seller.

The market rents are around $650(1bd) - $750 (2bd) so there is a possibility of increasing rent by another $250 which will increase my cash flow even further.

Why am I interested in this property,

- With small down payment, I can get my feet wet into REI and learn the overall business (working with property management, tenants, maintaining investment property away from your hometown etc.)
- Within my state so I can drive there in 4 hours if I have to.
- Planning to buy and hold for multiple years and initially check if it really cash flows (and passively) or not

My Concerns/Questions

- The property is 1939 so what if big expense like HVAC or Roof comes up in few years? Since cash flow is so small, there is no room for big expenses. I will order property inspection and will check each and every item carefully. (What are due diligence should I do?)

- General anxiety about investment property in C grade area and buying the first time. Am I missing any angle to consider while making this move?

- Tax assessed value of this property is around $98k. So my purchase price is close to assessed value and I am not paying any premium on top of it. Is that good sign? or is this because of deferred maintenance?

- If I do all the repair work, Will the price of property increase to 125k? Is so Can I refi and take out my investment for future investments (BRRR possibility here?)

 BTW on various websites, the estimated value of this property is shown as $125k - $145k (redfin, zillow, realtor etc.)


What do you guys think? Appreciate any expert advice. Happy to connect with other investors in Bakersfield area and talk on phone/PM

Thanks

[Ryan Scott Isacksen]

Find out the replacement dates on those bigger items:
Roof will last for the anticipated life expectancy unless damaged by outside source such as a tree limb.  The roof will need to be replaced once it reaches the replacement point.. ~20 or 25 years.
It can be hard to tell how the tank of a water heater is doing.  They can need to be replaced in 10 years or can make it for 30.  
HVAC - have that checked by a heating person.  Have the filter changed annually and you can probably get a bit of life out of a unit unless it is on its way out already.

It looks like you have budgeted for maintenance and reserve.  Keep that money to cushion repairs.  You probably won't have those kinds of things every month, but it may even out over the year. 

The value on the duplex will be based on comps in the area. Fixing and updating the property will bring it close to the high end of the comps as will having market rate rents.

Congratulations on being on your way to your first deal!