Duplex Analysis, what do you think?

Question

Duplex in C+ neighborhood that is not far from where some major white-collar industry is going to be soon-ish.

$65k price tag

Rents are currently $450/mo. That is low for the town, but maybe not for the area. One of the tenants has a year long lease, the other is month to month and would need 60 days notice to vacate. Tenants currently pay all utilities.

Needs about $15-20k in renovation, new windows, HVAC, water heater, lots of minor stuff and then all the cosmetic improvements

Tax $76/mo, with a 25% down loan at 4.75, the PI would be about $240

Thoughts?

Derrick E. · Answer

You will be investing around $36,000 of your own money up front. 25% down of $65k and then another $20k in renovations.

$450/month each side is $900 month total or $10,800/year. Using 50% rule that gives you a profit of $5,400 year.

$5,400/$36,000 is 15% which is good, but and it might even be great for that area. I personally don't want to put that much cash into something that is only bringing in 15% ROI unless I own the home 100% free and clear. This is just personal preference for me and my specific investing strategies.

$600/month each side gives you 20% ROI which is getting there for me.

NOW..... if you can get out of doing major renovations and keep the rent the same then those numbers look great to me.

$5,400/$16,250 (your 25% down) gives you a return of 33%. Those are the kind of numbers I like to see and look for.

Doug Woodville · Answer

Are you sure your loan will be that low? I've been told recently around 5.1%.

Amanda G. · Answer

Understood. The current owner has delayed a heck of a lot of repairs. I was deliberately over-estimating at 20k, because I know things always cost more than expected. My rough numbers were:

$3-4 k can't be avoided stuff like a new water heater, fixing plumbing and electrical, water damaged ceilings, and exterior stairs to upstairs apartment, etc.$3-4k because the upstairs HVAC is from 1980 and can't be trusted not to die any minute

slightly less than $5k- replacing all the windows. This one is avoidable-at least in the short term- as long as at least one or two work for fire exits. They aren't cracked, but the seals are broken and they fall out of the frames.

$5-6k, cosmetic stuff like removing all the damaged carpet and replacing with laminate and fixing sheet rock/painting and other pretty-ness. This would let me raise rent. $600 might be a stretch, but $550 seems doable.I left the seller with an offer for $55k. If I do the unavoidable and the cosmetic afor $10k and left the rent the same, the COC would be something like .24. With the cosmetic stuff I would be gambling that higher rent to help cover the eventual HVAC and windows, or a BRRR to take cash out.I don't expect the seller to take the offer. He has a price stuck in his head and his realtor isn't succeeding in persuading him. Maybe I'll see if it is still on the market in 6 months to make a new offer. But there are plenty of other options to consider, so probably not.

Derrick E. · Answer

See if you can get out of the renos. Why does it need $20k in renovations? People are currently renting it for $450. Why do you have to do anything to continue renting it out at the same rate?

Amanda G. · Answer

Aha! I just figured out how to tag previous comments. What numbers would make this work for you? Would you lay out the steps so those of us at home can follow along? Thank you, both.

Amanda G. · Answer

I think $600 in that part of town is doubtful. Thank you for the input. Jay, Derek, would you share the thinking steps that got you there?

Derrick E. · Answer

Exactly what I was wondering, because so far I would say no. If the reno get the rents up to at least $600/month then you are talking.

Jay Helms · Answer

How much of an uptick in rents will you see with the $15-20k in improvements?

Amanda G. · Answer

I believe my loan person locked it in at that rate, yes. It helps that it is 25% down.

Duplex Analysis, what do you think?

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