Hamption Roads VA Duplex Analysis- Value Add Opportunity?

Question

BP,

Just received the balance sheet on a duplex (converted SFH) in the Hampton Roads area. C+ to B- neighborhood with other single families in the area. House built 1940, 1800 sqft. Bottom rents for 1050, top for 750. Asking price is 119,900. Taxes last year $2084. Assuming about $1000 for insurance and 10% gross rents for management, the property only cash flows $900 a year without any CAPEX or vacancy losses...because annualized utilities for this year will be $9500. Monthly bills YTD average out to 286 for water, 365 for gas, and 140 for electric. Those just seem absurd to me, even for an older property. The owner YTD has done $3500 in repairs to heating, electric, and gas utilities. They are obviously atrophying cash and I suspect that is why they are selling. I see a value add opportunity by adding separate metering to all utilities and billing back to the tenants. Even if it were to cost $10k to do all the plumbing and electrical work, that would be close to 100% CoC return. Dropping the rents $100 a unit would still cash flow $200/door with the tenants paying utilities.

Numbers at a glance:

Gross Income- 22260

Taxes- 2084

Insurance- 1000

Management- 2226

Utilities- 9500

NOI- 7450 assuming no vacancy or CAPEX (just to illustrate how bad the current numbers are)

Debt Service- 6535 (30yr, 20% down, 5.5%)

Annual Cash Flow- 915 (Actual for this year with my debt service is -4797 due to CAPEX and no vacancy).

-On a 1940s house, assuming no major rewires or plumbing, any experience in how houses in this era were plumbed and wired? Intent would be to cap connections where necessary between floors and minimize number of holes in the wall.

-I have no pictures of the interior as listing only has exterior pictures, but I assume it is on par with a C+ property so updates will be needed. Given all the info and suspecting the owner is distressed by the expenditures, is $50k too low to offer for a 30 day closing with inspection contingency? I suspect it'll need about $20k in updates and splitting utilities to get into decent shape.

-If it were your money, would you seek out this deal or pass?

I appreciate y'all's time,

Kevin

Kevin Sack · Answer

@Sean Ploskina Portsmouth won't split water meters so it'll have to be submetered. Given the house is older and bills are higher, I suspect HVAC and appliances may be out of date, hence the large energy costs. Just a rough wag for now, but at least 10k for repairs/updates if no major intrusive work has to be done on the plumbing.

Sean Ploskina · Answer

@Kevin Sack  You will for sure need to split the utilities that is crazy.  50K is really low considering what they want.  So be sure to put down all the work it will need.  Double check if he has a mortgage, if its over your offer it might break the deal.  What are you budgeting for general repairs?

Also don't forget to check on flood insurance.  It can kill a deal quick.