First Deal Duplex in South East Michigan

[Leah Roberts]

Hi Biggerpockets community,

I am interested in this duplex.... this would be my FIRST deal... Any thoughts and/or advice would be so helpful!

Thankful,

Leah

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*This link comes directly from our calculators, based on information input by the member who posted.

[Kevin S.]

@Leah Roberts The two things I notice are 1) typically it's considered a good idea to budget for management expense (usually somewhere between 8-10%) as some day you may need to outsource that rather than self-manage, and 2) you might consider bumping up your vacancy to 8.33% since that would equal one month of rent saved up for every year your tenant is there. Good luck!

[Brock Carroll]

@Leah Roberts welcome to BP! Looking at your numbers a couple things stick out. 

1. Unless you're house hacking this property or claiming it as a primary residence, I've been hard pressed to find mortgage rates below 5.5% in the last month, especially with the fed increasing rates again last week. 

2. To @Kevin S. point above, it's usually best to budget for property management fee's, even if you're paying yourself that percentage today, it's nice to know how it falls if you decide to turn it over to PM later. 

3. A couple rule's of thumb that are talked about a lot on BP but also personal parameters, the $100+/door monthly CF and >10% COC ROI to entertain a property.

With just closing my first deal as well it was drilled into me by a couple mentors to make the first deal a great deal, not to rush the process despite the eagerness. My patience paid off and I wish the same to you! Best of luck!

[Leah Roberts]

@Kevin S. 

@Brock Carroll

Thanks guys for your insight... here is an update on the situation... The seller has it listed for $139,000. However talking with a realtor from the town and looking at rentometer and craigslist it seems as though the rent at $650/unit is below the average of $850/unit in the area. The tenants in the building are on a month to month lease and have been loyal long term renters. As you can imagine then the units themselves have not been updated but are still comparable to ones in the surrounding area. In your opinion, is it smart to come in with a pretty significant increase? I am concerned with filling a vacancy right out of the gate as we head into the winter months here in Michigan or should the time of the year not be of concern? I am eager to get my first deal under my belt but as you said don't force it. If I offer $120,000, increase rent to $800 and put in a management expense in at 9%... I am still looking at a COC return of only 7.45% and a CF of $218.... Am I forcing the deal?

[Brock Carroll]

@Leah Roberts Going into the winter months is definitely a slower time, I spoke to my PM this week and they said they're already seeing this as the "slow time" but that's on the west side of the state. I don't know your area for RE but I would talk to a property manager or three and get their feedback on the property and what they think that specific neighborhood and type of unit would rent for, they're the ones that live in that space day in and day out. It's best to not run the numbers with the highest expected rents because there are a lot of variables you may not be aware of when renting a property for the first time. It looks like you're estimating $800 when you think high end comps are $850, given the time of year and supply in the market you may want to run your numbers on a safer side of $750 and then run a fake ad on craigslist at $825 to see what kind of interest that stirs up. In my little experience realtors are decently knowledgeable about rents in the area, but unless they're actually putting people in leases or have rentals they don't know the market near as well as a property manager. You also have $115K in for the purchase price on your initial report, but given the market in MI lately most sellers on the MLS haven't been willing to come down more than 5-10% from list price on multi's if at all from what I've seen and heard, granted everyone's situation is different. With the new scenario you ran, the CF looks to meet my minimum criteria but the COC ROI is still low. This is where my newbie experience goes to my mentors advice of "don't stray from your criteria", so unless it hits both for me I wouldn't buy it, but that's just me. Good luck and sorry for the long rant.

[Leah Roberts]

@Brock Carroll no rant at all! Thank you for your insight it’s very much appreciated!

[Bjorik Mutize]

Numbers look good if you plan on self-managing. But agree what’s the numbers look like if you add in 8% for management and bump up vacancy? These numbers look very similar to my duplex!

[Account Closed]

@Leah Roberts - congrats on getting onboard this fun crazy rollercoaster! There are a hand full of local (to you) real estate meet ups that are wonderful to use as a sounding board. Also; for what it's worth you can find better COC ROI around metro Detroit. P.S. small multifamily I've found is best way to go.

[Leah Roberts]

@Trevor Daniel Thanks Trevor... I appreciate it. I’m still learning the area as I’m new to Michigan. Just moved here from Illinois. I am going to a MREI meeting tomorrow in Troy. Will you be there? If so let’s meet!

[Account Closed]

@Leah Roberts - I don't think I will make it but I am definitely going to a different REI group that is meeting at Camp Ticonderoga (rochester & square lake) Tuesday evening.