Deal Analysis - Dueling Duplex's in Pensacola

[David Slattery]

Hey Everyone! I've spent years crunching deal numbers just to let good properties get away and then see the gains someone else ends up making down the road... It's finally time to make moves, and I thought some perspective from the board might help me align my thoughts with reality.

Here are 2 Pensacola duplex's I'm evaluating and comparing. I'm inclined toward duplex #1, but I'm wrestling with my #'s for whether either is a worthwhile deal, and if so then to the comparative quality of both deals. What are your thoughts?

Duplex #1

Cap Rate 7.34... Cashflow $3,164 annually... Cash-on-cash 7.72%

The Property:

- Not listed, but owner mentioned to tenant they would sell it for $159k

- Each side is 2/2 rented at $750 each ($1500 total); Tenants handle all bills and lawn care

- No urgent repairs needed, but it's basic and somewhat outdated

The Area:

- "A-" neighborhood (upper middle class for Pensacola; good schools; low % of rentals; this is the only duplex I'm aware of in the neighborhood

- SFH's in the neighborhood are selling in the $175k - $275k range

- SFH's rent in the $1300 - $1600 range (mostly 3bed/2bath).

The Numbers:

Offer: $148k (no realtor) + $4000 (closing / inspections / etc.)

Financing: 25% down ($41,000); 75% financed 30 year fixed @ 6% interest = $666/mo mortgage

Expenses: Property Tax = $2000 annually; Insurance = $2000 annually; Maintenance/repairs = $1500 annually; Vacancy = 7.5%; No prop mgmt*

Rent: $1450/mo (conservative est.)

Duplex #2

Cap Rate 10.81... Cashflow $3,793 annually... Cash-on-cash 18.96%

The Property:

- Listed at $80k

- Recently rehabbed

- Each level is 2/1 rented at $500 and $550

The Area:

- "C-" area (area has mixture of tenants; this is on a busy road so it's not nestled back in the 'hood where you wouldn't want to go)

The Numbers:

Offer: $70,000 + budget $2,500 (closing / inspections / etc.)

Financing: 25% down ($20,000); 75% financed 30 year fixed @ 6% interest = $315/mo mortgage

Expenses: Property Tax $700 annually; Insurance $700 annually; Maintenance/repairs $750 annually; Vacancy 10%; Prop Mgmt 10%

Rent: $1000/mo (conservative)