First Deal Analysis Help

[Mario Delegato]

Hi BP! 

My girlfriend and I are beginning our RE investment journey with a multifamily house hack. We have a potential deal we would like to get feedback on — all advice/feedback welcome and appreciated :) We are converting a duplex with unfinished basement into a duplex + ADU (with separate meters). Property is located in Portland, Oregon in the Irvington neighborhood. This is a high quality east side neighborhood located 9 mins from downtown Portland.

Here are the numbers: 

Purchase Price: $680,000

Down Payment & Closing ($50,669) + Rehab ($99,950): $150,619

ARV: $850,000 (conservative) $890,000 (comps)

Expenses: $4,946 ($2,723.56 mortgage payment)

Income: $5,800 (conservative)

Cash flow: $853

CoC ROI: 6.8%

5-year Annualized Return: 25.41%

We recognize that the CoC ROI is not strong. Should that deter us from perusing? We are only putting down 5%, which certainly limits our cash flow. We also would like to refinance after rehabbing and renting the ADU to pull out our rehab costs and down payment/closing costs. If we do so, our cash flow will dwindle to about $178 but we will have no money in the property.

A few things to note. The rent is a conservative estimate and increasing rental income by only a few hundred across all three units improves the COC ROI and cash flow quite a bit ($6000 rental income = $1,011 cash flow and 8.06% CoC ROI). There is also a small garage that could be rented for storage or parking. Also, while we understand appreciation is "just the icing on the cake", the Portland market is growing rapidly and has showed strong appreciation. Lastly, the rehab is being potentially self-funded so no additional fees/costs there.

Thanks for reading through all this and thinking about our deal!