Hello BP,
Currently looking at a Duplex and curious thoughts/opinions and any advice or things that I am not thinking of. Have been looking for a long time for our first deal and trying not to have analysis paralysis and at same time being cautious and not getting into a bad situation.
The property was built in the 70's. One side has not been updated much since the 70's and the other side has been updated somewhat. Overall the property seems in good shape and no major issues that is known or seen. Our plan would be to get the most updated side rent ready first and rent out quickly (estimate roughly $10k to get it fully rent ready). We would plan to House Hack and live in flip the other side that is very outdated. It is in a great area that has seen a lot of growth through recent years. It is walking distance to lots of shopping/restaurants etc.
We spoke with realtor today and she believes we have a competitive offer with price that is close to asking, as well as a 6% sellers credit. We would plan to use the credit for rate buy down and getting us a interest rate 6%, as things stand today. The owner is a single man that is old age and needed to move into a retirement home. He is motivated to sell and already expressed he would be open to the credit.
I ran the numbers on the calculators and got the below. This is of course dependent on if we can rent for the proposed amounts and there are not major issues with the property that would require more money. Overall it seems to be in good shape and no glaring damage/issues.
Details: Full Duplex
- 6 Bed / 3 bath
-2,400 sq ft
-Asking Price: $600k
-Offer Price: $585k with 6% seller credit.
-Down Payment: 20% ($117,000)
-Potential Rents: $2,000-$2,300 (Most 3 Bed 1 1/2 Bath rentals within 5 mile radius we found on Rentometer are around $2,100)
-Monthly Income Estimate: $4,200
-Total Expenses (Incl. 15% for Maintenance/ Vacancy/Cap Ex) : $3,876
-Monthly Cash Flow: $324
-CoC ROI: 3.31
-5 Year Annualized Return: 10.52%
-NOI $37,548
-Pro Forma Cap: 6.42%
What I like:
- Great location in a growing area and walking distance to many shopping and restaurants.
-Property seems to be in overall good shape with overall good curb appeal. It needs mostly cosmetic work (paint, new flooring, few doors and windows). I feel good value add opportunity as well as we would live in flip the other side and earn some sweat equity.
-I like each side has garage as well as large fenced backyard.
-If i can get rents for ~$2200 and also get the sellers credit to buy down the rate , we should cash flow from beginning.
What I'm concerned with:
-Being built in the 70's, there is hidden issues that could bring big costs. Roof was done in 2005 but appears to be in good shape. Water heaters installed in 2018
-It only has 1 full bath upstairs and a half bath downstairs. The 3rd bedroom is very small. Would only work for a office/small child/nursery.
-The market is so volatile and are we buying at potentially a very bad time (I know we cant know this, but its still scary)
Please let me know overall thoughts and things I'm missing. Overall we are trying to find anything that would break even or cash flow so we can get started on our investing journey. Plan is to long term rent and hold for a long time. Wanting to acquire 5-6+ long term hold properties to build out our portfolio and be financially free in 12 years or so. Thank you!