Analysis Help, Please

[Ryan Wamsat]

I am considering purchasing my first out-of-state rental property, which is an off-market deal.  I'm rather nervous about this one, as it'd be the first one that I haven't occupied before turning into a rental.  Please help me out with the deal analysis.  Are there any pitfalls that I'm not considering?  

This duplex is in Massachusetts, and it is an older home; built in 1912.  The first unit is a 3/1.  The second unit is a multi-floor 2/1.  There is a long-term tenant in the 3/1, paying $1,000/mo, which seems slightly under market value.  A quick look around the Internet suggests that the second unit would rent for $875/mo.  From the pictures, the house doesn't appear to need much work, so the repair budget is low.  If I do move forward with this, I would fly out there and see the property first-hand before committing.

• Purchase Price: $115,000
• Closing Cost:  $2,500
• Est. Repair: $5,000
• Down Payment: $23,000 (20%)
• Repairs: $5,000

Expenses

• Monthly Payment: $459.34
• Vacancy: $92.50 (5%)
• Repairs: $185 (10%)
• CapEx: $185 (10%)
• Prop Mgmt: $185 (10%)
• Tax: $311.46 (3.25%)
• Ins: $143.75 (1.5%)

• All-In Costs: $30,500
• Cash Flow: $304/mo
• Cash-on-Cash: 11.96%
• ROI: 8.36 years

If there is anything I've omitted, please let me know and I'll find the answers. 

I appreciate everyone's help!

Ryan

[Charlie MacPherson]

@Ryan Wamsat  Here's what I can see: (not disclosing the address to protect Ryan's deal)

It's off market and looks like it was bought by wholesalers. I don't see any previous sales in MLSPIN, but it could have been listed on the Berkshire MLS which I don't have access to.

Last purchase was 3/8/19 for $70,000, which also seems to have been off market.  At what appears to be a $45,000 difference (minus holding / closing costs), they're taking a pretty big markup!  Unless of course, they've made major improvements in the 5 1/2 weeks that they've held it.

Without it being listed, I can't comment on condition, as I don't have photos.

It was built in 1912. That means that you should head straight to the basement and look for:

Water / humidity - especially as it probably has a fieldstone foundation.  If the pointing isn't well maintained, it can be a superhighway for mice and water intrusion.

Knob & tube wiring.  It definitely had it at some point.  Be sure it's all gone - or budget to replace it.

Along with K&T usually comes fuses instead of breakers.  That usually means a full electrical upgrade at about $8K +/-.

Cedar post supports.  These shrink very slowly and can cause floors out of level.

Decrepit plumbing / leaky waste lines.

Look for wood destroying insect damage.  The bugs have had 107 years to munch away.

I strongly suggest that you include a home inspection contingency in your offer to purchase.

I don't know how sharp these sellers are, but I also strongly suggest that you have either a good real estate attorney or a Realtor represent you in negotiations.  If you're not an experienced negotiator in the real estate world, the seller can walk all over you without you even knowing it happened.

Local area: 

I looked at the map and don't see any detractions or unusual noise sources in the area.

However, if you're not familiar with the area, anything west of I-495 and north of I-90 is in the snow belt.  The Worcester hills are at about 1,000 feet in altitude.  While the rest of eastern MA might get a cold rain, that part of the state gets snow - and a lot of it.

I didn't see a landscaping budget item, but you'll need one unless you're doing it yourself.

Area rents:

There were ten 3 bed rentals that were rented within 1/2 mile and within the last 6 months.

Low was $900, high was $1,300.  Average was $1,120.  The tenant is a little below market at $1,000/month.

There were three 2 bed rentals in that same period:

Low was $995, high was $1,200, average $1,132.  I think your estimate of $875/month is low.

Good news - FEMA says you're not in a flood zone, despite the nearby river.

I hope that's useful!