Author Topic: Potential Duplex Purchase  (Read 2967 times)

Chiron

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Potential Duplex Purchase
« on: March 21, 2013, 10:09:07 PM »
Hi everyone,

I'm looking to purchase my first investment property and came across a promising duplex.  Here are the numbers:

List price: 94k
Rent 1250/month
Vacancy: 104/mo
Management: 177/month
Taxes: 101/mo
Insurance: 40/mo
Maintenance: 125/mo
Water (paid by landlord): 80/mo (need to confirm this)

At this list price and $23.5k down and a 30 year 4.5% mortgage, I'm seeing a COC return of 13.52%.  If I manage it myself, I will get $5300 in tax free income in my first year, as well as ~$2k in equity (assuming 1% appreciation). 

What does everyone think?  Should I offer more like $80-85 to account for closing costs, etc?  Really appreciate the wise mustachians' thoughts on this opportunity.
« Last Edit: March 23, 2013, 04:52:03 PM by Chiron »

meadow lark

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Re: Potential Duplex Purchase
« Reply #1 on: March 23, 2013, 01:48:05 PM »
Your maintanence cost seems a little high. 

Chiron

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Re: Potential Duplex Purchase
« Reply #2 on: March 23, 2013, 04:52:34 PM »
Yeah - there was an extra 0 in there.  Any thoughts on what you'd pay for this house?

Another Reader

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Re: Potential Duplex Purchase
« Reply #3 on: March 23, 2013, 05:07:33 PM »
All you have provided is a bunch of numbers on paper.  Without knowing a lot more about the property, I can't tell you what I would pay for it or if I would even buy it.  Where is it located?  How old is it?  What condition is it in?  What's the neighborhood like?  What's the vacancy in the neighborhood?  Are rents in the area increasing, decreasing, or stagnant?  What have other duplexes in the area sold for recently and are they comparable?  What employers are nearby?  Is the property close to transit?  Are both units occupied?  How long have the tenants been there?  Are the utilities separately metered?  Does the duplex conform to existing zoning?  Are there garages, carports, or other off-street parking?  Are there common laundry facilities, does each unit have its own, or do the tenants have to find a laundromat?  Are the floorplans desirable to the rental market?  How many bedrooms/baths in each unit?  How much does the landlord pay for common area maintenance and utilities?

I could go on for half a page, but you get the idea.  You are not buying a share of stock.  A duplex is not a piece of paper.  It's an assemblage of moving parts, all of which must be understood before deciding to buy or what price to pay.  If you buy based on paper numbers, you will end up with a bunch of problems you could not have anticipated.

Chiron

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Re: Potential Duplex Purchase
« Reply #4 on: March 24, 2013, 10:09:55 PM »
Yes, I understand that there's more to each property and the circumstances around it than just the current financials.  I guess my question is what is the minimum return you'd consider before further investigating a property?  In addition, all else being equal, what is your target return?  I think 10% COC return is a good minimum to shoot for in this investment environment, but am new to this so could be off base in expecting that.

Appreciate the insight - those are definitely good things to keep in mind.  Fortunately, most of those questions are answer favorably for this property.  It's one major downside is its immediate proximity to a busy five-point intersection with some aging businesses nearby.  The tenants are already in place with one-year leases.

One question regarding tenants - do you demand to see the applications and credit checks of the existing tenants on file with the current property manager? 

Another Reader

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Re: Potential Duplex Purchase
« Reply #5 on: March 24, 2013, 10:26:36 PM »
The return I would require would depend on everything I listed and more.  10 percent cash on cash in a decent stable neighborhood with realistically calculated income and expenses is a good place to start.  The sketchier the neighborhood, the higher the return I would demand because of the reduced likelihood of actually collecting the rent and the more tenant problems I would have to resolve.  I don't recommend war zones, no matter what the paper returns are.

SunshineGirl

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Re: Potential Duplex Purchase
« Reply #6 on: April 03, 2013, 09:31:26 AM »
Chiron, the numbers look decent to me, although I would hesitate to buy a small property on a busy street. I'm assuming this five-point intersection qualifies. Around here, those are the hardest properties to sell and tend to rent for a little less than you'd get if it was even one block or a few houses off the busy street.