Author Topic: First Investment Property Duplex - Numbers  (Read 555 times)

icebox92

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First Investment Property Duplex - Numbers
« on: June 25, 2020, 06:13:32 PM »
Up / Down Duplex on market.
2bd / 1 bath units

Purchase price: $255k
25% downpayment = $63,750 @ 4.25% 30 year fixed
Closing costs: $2,500
Improvements: $0

Monthly rent: $2700

P&I: $941
Taxes: $185
Insurance: $91
Management: $243
10% vacancy: $270
CapEx: $262
Utilities: $300
Lawn and snow: $0
Expenses total: $2293

Cashflow: $407/month
Cash on Cash Annualized ROI: 7.37%

Other factors:
We've bought two primary home, but this is our first true investment property, so I'm new to this...
I believe this would classify as a C+ to B- neighborhood...  Its really a fantastic neighborhood (most desirable in the area) but the unit is literally on the last street of the neighborhood, and across the street becomes commercial properties. 
The rental values seem a little high to me, but supposedly they are what the unit has been getting thus far.  I check against craigslist, rentometer, and zillow and think it might be prudent to lower the rent assumption to $2,500 instead of using the listed rent values for the property.  Thoughts? 
This is in my husbands home town, which we will be moving back to in 2023.  His mother would most likely manage the units until then when I will manage the units (see breakdown below). 
List price is $265K, I would like to get it for lower than the $255K I have listed above (closer to $235K-$240K), but from what I understand of the market, I most likely wouldn't be able to.

I plan on self managing in 2024, so cashflow would increase:
Rent: $2922
Expenses: $2140
Cashflow: $782/month
Annual ROI: 14.17%

Please give me all the harsh feedback...  I would appreciate any feedback.  Again, this would be our first investment property purchase, so I'm sure I'm missing quite a bit.

icebox92

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Re: First Investment Property Duplex - Numbers
« Reply #1 on: June 26, 2020, 03:07:13 PM »
I've found out some more info from our realtor:

Looks like the siding wasn't done correctly, so it even though it looks brand new.  It needs to be re-done.  I'll continue to invetigate that, but have add $20K in repair costs. 

The Selling agent also claims overage maintenance over the last 10 years has been $500 annually...  I lowered my maintenance from $2200/yr to $1760/yr, 500/ yr is way to low to count on IMO. 

Some larger maintenance / updates items done 2 years ago:  New Roof, updated baths, new flooring, new deck, new egress windows in bottom unit.

I've also lowered my asking price to $220K, I'm not confident it will be entertained.

I've attached my spreadsheet with the new numbers... figured that would be easier than regurgitating from the original post. 

Again, any feedback would be appreciated...  Especially where I am too aggressive / conservative in my assumptions.  I think this could modify my asking price...

« Last Edit: June 26, 2020, 04:20:55 PM by icebox92 »

waltworks

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Re: First Investment Property Duplex - Numbers
« Reply #2 on: June 27, 2020, 10:14:01 AM »
Why are you paying the utilities? Is that normal in your area for a duplex? It's not uncommon for larger apartment buildings around here (though most have been converted to have every unit metered) but I've never heard of a duplex for rent with free utilities.

I'd keep maintenance estimate at 1% per year or so. If they only spent $500/year over the last decade, they are either lying or they did a terrible job maintaining the place. Heck, just painting inside/out once would cost close to what they spent the entire time!

If you can get it for $220, I think you'll do ok. It's not a home run but it's not a disaster waiting to happen either. If it's going to cost a lot more than  that I'd skip it just because an up/down duplex sounds like it'll be a lot of potential work/headache for not a great return.

-W

icebox92

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Re: First Investment Property Duplex - Numbers
« Reply #3 on: June 29, 2020, 10:56:37 AM »
Why are you paying the utilities? Is that normal in your area for a duplex? It's not uncommon for larger apartment buildings around here (though most have been converted to have every unit metered) but I've never heard of a duplex for rent with free utilities.

I'd keep maintenance estimate at 1% per year or so. If they only spent $500/year over the last decade, they are either lying or they did a terrible job maintaining the place. Heck, just painting inside/out once would cost close to what they spent the entire time!

If you can get it for $220, I think you'll do ok. It's not a home run but it's not a disaster waiting to happen either. If it's going to cost a lot more than  that I'd skip it just because an up/down duplex sounds like it'll be a lot of potential work/headache for not a great return.

-W

Thanks @waltworks ! I appreciate the feedback.  To answer a couple of your questions, honestly I don't know if paying utilities on duplex is "normal" for the area.  There aren't a TON of duplexes and the majority of properties in this area don't meet the 1% rule so we don't even entertain this market (and we are newbies).  The utilities are not metered separately, thus why I assumed they were previously included in the current tenants rent.  I also thought it would be more of a PIA to figure out utilities between two tenants then it was worth.  Do you have any ideas / suggestions for doing so?  Besides getting both units metered separately (which isn't in the current numbers)?

Also, you mention the fact that it is an up / down duplex may be more of a hassle than its worth... Can you elaborate?  Is this more difficult than a side by side?  How so?  What am I missing?  Besides the basement unit being a less desirable unit, I'm not sure I understand this. 

Again, I really appreciate the feedback!  Sounds like the seller isn't going to entertain the $220K purchase price, we are considering $240K, but I'm just not as comfortable with it at that price point...  Thoughts?

waltworks

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Re: First Investment Property Duplex - Numbers
« Reply #4 on: June 29, 2020, 11:10:42 AM »
Up/down duplexes are usually converted SFHs (ie, basement apartment). They weren't designed to be duplexes, so there's no easy way to really soundproof the floor/ceiling (commercial buildings/apartments are built differently to allow for this). This tends to mean that both tenants can hear each other *all* the time, which means you have to make really sure the tenants get along well. If they don't, it quickly becomes a problem. In some cases heat/AC, water pressure, or other items are also prone to the two sets of tenants intefering with each other (ie, tenant A flushes the toilet while tenant B is in the shower, or something).

Your situation might be different, of course. Is this a legal/conforming duplex? Or just a conversion basement apartment situation?

-W


icebox92

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Re: First Investment Property Duplex - Numbers
« Reply #5 on: June 29, 2020, 11:54:38 AM »
Up/down duplexes are usually converted SFHs (ie, basement apartment). They weren't designed to be duplexes, so there's no easy way to really soundproof the floor/ceiling (commercial buildings/apartments are built differently to allow for this). This tends to mean that both tenants can hear each other *all* the time, which means you have to make really sure the tenants get along well. If they don't, it quickly becomes a problem. In some cases heat/AC, water pressure, or other items are also prone to the two sets of tenants intefering with each other (ie, tenant A flushes the toilet while tenant B is in the shower, or something).

Your situation might be different, of course. Is this a legal/conforming duplex? Or just a conversion basement apartment situation?

-W

Yeah, the noise was definitely a factor we thought about in making the downstairs a less desirable unit.  It is definitely a converted basement apartment situation...

I should say one reason we are interested in this at all is the fact that it could be a home base / house hack for us eventually.  We plan on relocating here eventually (2-5 years from now) I don't foresee other opportunities coming up very often in this market.  We are currently looking at other markets that have more lucrative numbers, but thought this might be a good opportunity that could also provide some additional opportunities for our personal goals... 
« Last Edit: June 29, 2020, 11:57:35 AM by icebox92 »

waltworks

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Re: First Investment Property Duplex - Numbers
« Reply #6 on: June 29, 2020, 12:42:55 PM »
If you're pretty sure it's a place you'd like to live, that would tip me toward "do it". Your earlier description didn't make it sound very desirable as a residence, though (across the street from commercial?)

Good rentals that also make sense to live in (and vise versa) are super rare in my experience.

I don't think you'll lose money on this. You'll probably make some. But it might be more of a pain than it's worth if looking at it purely as an investment, so you'll have to balance that with your interest in moving into it in the future.

-W

lilbenny34

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Re: First Investment Property Duplex - Numbers
« Reply #7 on: July 04, 2020, 01:16:46 PM »
Hello,

Happy 4th! Any updates?

Walt is on point as usual, but i'll add the following:

-Up/down unit would be the best kind of attached duplex should you consider future move in. It will be easier to convert to a large SFH should your family expand as well.
-My duplex has shared water and I have been contemplating my options for 5+ years, but haven't taken any action as it seems to be working fine thus far. I know there are multiple options, but in my neighborhood it is very common so it's not a major issue. electric and gas are separate though. I split the bill in half as the number of occupants are the same between the units. This is probably why the rent is higher because it includes utilities.
-I'm personally not opposed to living near commercial buildings assuming they close at normal business hours and aren't some dangerous/toxic plants/businesses. If you WFH full time, I would assume it would be undesirable.     

With that said, I rarely see purchases of "future move in" work out well/as planned. Life changes so fast, especially now. I would only make the purchase as a strict rental (anything else is a bonus). I would also bet that should you move back to this city in the future, there will be a house you will like (you don't have to buy today for the future).

I feel you've done your homework and thought this through so give yourselves credit. I say go for it as long as you have your finances under control.

EDIT: I would shop around for way better interest rates :)