Please Review My Rental Analysis!

[Michael M.]

Hi All, So I think I found a duplex to invest in Clark County, Ohio (My first investment...and out of state to add to it!).

Just wanted to get everyone's thoughts and opinions prior to writing the offer. Please let me know if you think I'm missing something. I'm a little nervous (out of state investing part) yet excited (because it'll be potentially my first investment). All advise is appreciated!

Thanks!

Assumptions: 


Closing Cost: Assumed 4%

Property Tax was estimated at $2700~ on Redfin / Trulia, just pampered it a bit to be conservative just in case with whats going on.

Repairs: $5,000 - Based off photos, house looks well maintained; just a reserve amount for any touch up work needed

Interest Rate - Used 5.125% since it'll be an income property 

Rents - Prices are on par with Zillow's advertised rent in the surrounding area, verified with local REA. Also, tenant pays all utilities

Unit 1	Bd / Ba	3/1.5
Unit 2	Bd / Ba	3/1.5
Asking	$ 200,800.00		Down Payment	25%
Purchase Price	$ 185,000.00		Loan Amount	$ 138,750.00
Closing Cost	$ 7,400.00		Interest Rate	5.125%
Annual Property Tax	$ 3,500.00		Duration of Loan (years)	30
After Repair Value	$ 185,000.00		Monthly Payment	$ (755.48)
Estimated Repairs	$ 5,000.00
Total Cash Required	$ 58,650.00
Property Tax	$ 291.67
Water	$ -
Maintenance Expenses	$ (126.00)	7%
PM Fee	$ (144.00)	8%
Cap Exp	$ (126.00)	7%	Unit 1	$ 900.00
HOA	$ -		Unit 2	$ 900.00
Insurance	$ (150.00)		Unit 3	$ -
P&I	$ (755.48)		Unit 4	$ -
Total Monthly Expenses	$ (1,009.81)		Projected Monthly Rent	$ 1,800.00
		NOI	$ 790.19
		GRM	8.565
		Cap Rate	5.13%
		COC	16.17%

[Sam Alomari]

Hi @Michael M.

You missed a very important expense especially for a duplex which is (Vacancy)! It is my number one reason to avoid multifamily rentals. SFH has a lower vacancy rate but for a duplex, I would account for at least 10%. Now your monthly net is $610 and COC is 12.48%

I noticed that you estimated $5k repairs but for some reason you don't believe that the $5k is going to increase ARV. If that's the case, then you should buy for $180k or less. Why would you pay $185k when you know the property worth $180k? Again ARV is "after repair value", so your ARV should at least equals your (purchase price + Repair Cost).

Usually your ARV should exceed (cost+repair) because you are taking on the risk of a repair/rehab project as well as investing your own time, so I would pay $175k at most (Usually I go lower) so that you get some upfront equity. Remember, you make money when you buy :)

Cap Rate and GRM are generally used on commercial buildings and are irrelevant when you talk about residential real estate below 5 units. 

GRM is a rough estimate only, so don't worry about it. Even if we consider the Cap Rate, how do you like your 5.13% Cap Rate? I know you are probably looking at the COC, but if you want to sell your investment, and if the Cap Rate is a valid measure, then it's too low and that's what an investor would use (again, if it's valid) to figure out how good is this deal.

Residential real estate is affected by the location and crime, so if your duplex is 10% Cap Rate and in a high crime area, good luck selling or even attracting good tenants. My point is, don't look at Cap Rate, just look at cashflow, crime rate, location, potential appreciation, etc.

Finally, I suggest that you dispatch a good inspector to give you a full report about the condition. You can submit an offer with inspection contingency.