Duplex Investment- Need help with analysis

[Joe Garvin]

Need 

Duplex- asking price $169,900- thinking of offering $159-161K

Rents: $850 & $750 ($1600) both should be raised to $900

Taxes: $1144

Down Payment: 30%

Below is the report I ran with a purchase price of $159500.  The owner bought this property in in 11/2013 for $71,400 and has made some improvements.  Here ate their comments:

Many upgrades were completed to this property a few years ago. New kitchen, new ac systems, flooring and paint. Each unit has a rental value of about $850/month totaling $1,700/month gross income. 

Monthly Income: Monthly Expenses: Monthly Cash Flow: Pro Forma Cap Rate:

$1,650.00 $1,158.05 $491.95 7.05%

NOI Total Cash Needed Cash on Cash ROI Purchase Cap Rate

$12,692.00 $55,166.50 10.70% 7.96%

Property Information

MLS Number:

Purchase Price: $159,500.00

Purchase Closing Costs: $2,200.00

Estimated Repair Costs: $4,000.00

Total Cost of Project: $165,700.00

After Repair Value $180,000.00

Property Description

Public Remarks: Great Investment Opportunity!  This duplex features (2) 2 bed /

1 bath units. Many upgrades were completed to this property

a few years ago. New kitchen, new ac systems, flooring and

paint. Each unit has a rental value of about $850/month

totaling $1,700/month gross income.

Down Payment: $47,850.00

Loan Amount: $111,650.00

Loan Points: $1,116.50

Loan Fees:

Amortized Over: 30 years

Loan Interest Rate: 4.500%

Monthly P&I: $565.71

Income

Rent $1,650.00 Other $0.00

Total $1,650.00

Expenses

Vacancy $57.75 (4%) Repairs $123.75 (8%)

CapEx $49.50 (3%) Insurance $166.00 (10%)

P&I $565.71 (34%) Property Taxes $95.33 (6%)

Misc $100.00 (6%)

Total $1,158.05 (70%)

Buy & Hold Analysis - 01/24/18 07:17:39

PM Page 1 of 3

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Financial Projections

Total Initial Equity: $68,350.00

Gross Rent Multiplier: 8.06

Income-Expense Ratio (2% Rule): 1.00%

ARV based on Cap Rate: -

50% Rule Cash Flow Estimates

Total Monthly Income: $1,650.00

x50% for Expenses: $825.00

Monthly Payment/Interest Payment: $565.71

Total Monthly Cashflow using 50% Rule: $259.29

[Ben Wilkins]

@Joe Garvin - what exactly are you looking for? Any specific advice?

Just by going over the numbers quickly, I have a few questions / comments.

First question: You say that rent should be raised to $900, seller says $850. If it could be raised to $850, why didn't he do it? Sellers usually raise rents as much as they can in order to make their property look like a better investment. Where did you get the $900 from?

Advice: Check out RentJungle or RentOMeter to compare local rent rates. This can give you a good idea of how much an apartment will go for based on size and number of rooms.

First Comment: Good job running another look at the numbers. The seller states a cash flow of almost $500 per month, but this never takes into account maintenance, CapEx savings, vacancy, etc.

Second piece of advice: You only have 3% CapEx savings per month. The property has already had work done, but it isn't a new construction. I strongly suggest raising CapEx to a minimum of 5% per month, with an even stronger recommendation of putting it closer to 10% per month. Older buildings are more prone to needing larger-ticket items, and it will always feel better to pay out of a savings account rather than out of what you had originally thought was profit.

Suggestion: You know what your expenses will be (8% maintenance is fair, raise CapEx to 10%, vacancy of 4% may be low, insurance I would get a quote on as your rate seems high). Don't play with expenses, thinking that you can cut corners to increase cash flow. Your options are to increase rent (RentJungle will tell you how high you can expect), or decrease your financing payments (decrease purchase price, negotiate for a lower interest rate, etc).

My philosophy: (Almost) Every investment property has a price at which it would be worth it for me. If I know my expenses and income, I can find a purchase price that will bring my mortgage down far enough to provide my target cash flow. There are always exceptions to this rule, but they are usually extreme.

Advice: Decide what you want. If you are looking for a cash flow number (say, $200 per door per month), you can find a purchase price that will give this to you. That way, you know what your bottom line is and you won't slip past it while chasing a property.

If you are looking for something more targeted in feedback, ask away!