Duplexe deal analysis advice

[Pascual Torres]

Property details:  Duplex on corner lot with nice views. Each unit is 2 bed,1 bath. They are both identical layouts . It is on a block with with about 7 other identical buildings. This one is one of the crappiest shape.

Slab on grade with open beam construction.

Gas furnace, electric water heater. City utilities 

Price: $195,000

Taxes: $1778/year

Insurance : estimated $50/month

Down payment: 25% = $48750

Rehab costs: $5000- new floor, paint, couple windows

Loan amount : $146,250+$5000 for closing costs= $151,250

Interest: estimated 4.5%

30 year fixed

Monthly payment principal and interest: $766.36

Total monthly payment with taxes and insurance: $964.52

Income: unit #1 $725 , unit #2 $895- unit 1 is lower because owner hasn't raised rent to a 10 year tenant. I don't know why.

Income total: 19,440/year

Expenses: garbage : $20/month, sewer: $46/ month, water: $84.06/month

expense total: $150/month.     $1800/year. 

Note: im sure there is more expenses for example grounds keeping. I just don't have the exact details yet.

NOI: $17,640/year

Cash flow: $6065.76/year

Cap rate: 9%- could be more if rent is raised

 Coc: 11.8% ( includes rehab, down payment only)

Total ROI: 

Property appreciation- 2%/ year= $3,900

Equity:$2440 1st year

Cash flow : $6065.76

Total: $12526.76

Total ROI : about 25.6%- this is with no taxes involved 

This is a deal me and my sister would be going in on. I am new to real estate investing , she already has some duplexes as investment. I feel like the property has lots of potential. It is a booming market around here. The place currently looks trashy due to the tenants but there is another duplex right by it that's looks awesome.

I think the plan would be to buy them, kick out the tenants, give it a minor face lift and get new tenants with better habits and make the rent $900 each one.

What you guys think?

[Aaron M.]

@Pascual Torres

Double Check your numbers. I ran the numbers and i am getting about a 7% Cap and 9% CoC with 5390 Annual cash flow which is $400 bellow yours.

That being said

Looking at your explanation it looks like you did not take in to account Vacancy, Maintenance, CapEx, and Property Management. In my opinion Vacancy, Maintenance, and CapEx are a MUST when analyzing a property. People can make the argument that they will manage themselves and not include it, however i would not buy a property that does not cash flow well while paying a management company. If self manage that's just a bonus to you.

Once you include these factors the deal looks very different (Vacancy 5%, Maintenance 5%, CapEx 5%, and PM 10%). Cap 5%, CoC 2.7% and Annual cash flow $1607 which is less that $100/month per door.

If you were able to get the other unit up to $895 it gets better. Cap 5.85%, CoC 5.28%, Annual Cash Flow $3147.

To me it seems like a low CoC return.