Good investment?

I am looking to buy a duplex on the main road through town. Here are the details.

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It is a duplex that has rental income of $935/month. The owner pays utilities that average $220/month. Taxes for the 07 taxes are $1144. With 95% occupancy rate since 2001. Price $69,900

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What other questions should I be asking?

The utilities seem to be rather high so I am thinking it needs to be better insulated and better systems installed cause my 1800sq ft home only runs about $120/month average.

Here is some more information I received from the realtor.

1. Yes, both units are occupied
2. Both have been there 5-6 monthes
3. I have met with both tenants, they both work at Rapid City Regional, and both seem more than willing to stay.
4. Based on 95% occupancy rate, $2640/yr for utilities, $1144 taxes, and $1200 misc expenses, the cap rate is .093%
5. Divorce (out of town owners ), and neither party can or wants to buy the other out.

I bought a $159,000 unit that onlly gets $1,100, to be getting $900+ on a 70k place seems great ? Even if it's in bad shape, it would more that cash flow. I would anticipate on doing some inprovements.

You have to look at it as if you were paying Cash. If you spent 70k and made $900/month, you would be making 15% return. That is Smoking. Not only is 15% a good return, you are making out alot better becasue they tax Rental income different.

If you need a partner on that deal call me, that seems under priced. (208)571-1355.

Here's the beauty above and beyond what I put above. You would get a 15% return (Roughly) on the deal but if you look at it as only putting 20% down, financing the rest in a 15 year loan, you would have a Asset generating income that is paying for itself that you are not Funding at all !! The return on the money hits hard to calculate numbers.

Example. Put 14k down your payments are <$600, you are cashflowing 300+ bucks. So for a 14k investment your return is 26% return (Yearly minus expenses whiuch you write off anyways), In addition, your having someone else paying off your Building. In 15 years even if you give it away (Which you wouldn't) you would have made some Serious coin !!!

Get some pictures of it and let me know, I would be willing to jump on a plane to come out and Look at it this week if you are looking for a Partner.......

I will talk to my wife on it and try to convince her. She is more the paycheck type person so she is not into these types of investments too much but I appreciate the offer and will definitely consider it and let you know.

Here is a pic of the outside of the duplex. If I can talk my wife into it I will go get more pics on Monday. The best thing about this property is that it is on the main road through Rapid City to Mt Rushmore and right now there is a big push for a whole redesign of downtown Rapid City to attract more business. This whole road in my opinion will become commercial in the next 10 years. This home is surrounded by existing businesses, hospitals within a couple blocks.

Your math's wrong, Moosie. He'd have almost $5K in expenses a year before the mortgage. He's simple return would be 8%, still very good.

I wouldn't place too much faith in the 95% occupancy. You're either 100%, 50% or 0%. Figure out how long you could pay the mortgage at 50% occupancy. I'm conservative, I'd want 6 months of rent set aside for Oh Shits. In this case, it'd be roughly $3K.

It sounds like a no brainer if the building is in good shape.

Livnthegoodlife said:

Here is a pic of the outside of the duplex.

Click to expand...

Nice looking if your into RED X's !!

I can see the picture fine, Looks OK !

Where is the 5k ? Are you talking Closing , etc ? at any rate, you would be a fool (I think) to buy it cash even if you had the money. You would keep your cash reserves liquid and do the 20%. Is that a correct statement ?

I do agree you are either 100%, 50% or 0% full. Past rents are nice to look at but don't really bring much into the projections. If you want an Accurate (or more Righter ) you would go down and get the Rental History % in the town. If the occupency rate is low over all, it means alot more. You could always lower your rent, and steal a renter if need be.

$5k - $2640/yr for utilities, $1144 taxes, and $1200 misc expenses per an above post.

I'd also see what type of utilities. They could be quoting a 5-year average. Propane, gas etc. have gone up a lot in the past two years.

Here is an interesting article about the area this home is in.
http://www.rapidcityjournal.com/articles/2008/02/11/news/top/doc47af968a08a71660596691.txt

Makes me even more interested.

I don't think this is the case (they talk about state funding) but make sure you don't have to pony any money up for the street work. I've lived in areas where this has been the case.

good point! Since it is still in the early stages I will keep a close watch on that.

I missed the part that said owner pays utilities. If it was me, I would redo the rent, lower it, and make the renter pay. Nothing like having someone leave open windows and running the heater all winter......

My guess is there is no way to make the owner pay for the street repairs ? At least here is Idaho the home owners don't own the street unles it's a private Rd. They are Right of Ways, state owned, Highway districts, county roads. New developers have to Dedicate frontage sometimes and sometimes in the Subdivision proccess they have to help pay for the improvements, but once it's in all costs bear elsewhere.

Let me know when you need my portion of the money

Looks like a slam dunk to me. Any time your rents are more then what I call 10 % ( 70k investment/ 700 month income) it is a now brainer. I have a houes here that appraised at 225K and I can only get 800 a month rent ( glad I bought it alot cheaper!!!!). Do what you have to to talk your wife into that one. Even if after expenses the thing just covered its own costs in ten years you should be able to count on at least an 8% per year increase in equity. Some years will be even higher.

I agree with Moosie about having the renters pay their own utilities. BUT there may be only one furnace, One water meter and one electrical service to the building. The expense of updating ( especially if it is all working fine) may not pencil out.

Good luck. Now really is the time to start thinking about buying.

Don't they have assessments/bonds for community improvements? Lighting districts, streets and gutters assessments? The move here has been to have developers pay more for this kind of thing up front or through Mello Roos, but in older, existing neighborhoods, the property owners get assessed. Also, any chance of the city taking some of the property through emminent domain for street widening? How wide is the street in front of this property, as the article you linked mentions the differing width of the street.

Well I made it to take pictures today and had a good conversation with the realtor. He owns the single family home 2 doors down and is renting it out at $635 plus utilities and the house in the middle is for sale if someone wants to buy it. Basically a person could buy all 3 for about 200k and would have a nice location for a commercial building in the future. The whole area is surrounded by commercial. On the same block at the beginning is a redone home that is now commercial offices and is on the market for $180,000 but it is brick and alot bigger and nicer than these rentals. So.......my head hurts from all the thinking.....

Here are the pics.


Side view of the duplex. 1 entrance for studio basement apartment and back entrance for upper apartment.


Kitchen in studio basement apartment


Studio apartment has this extra room that for some reason has a sump pump in it. I was thinking about finishing this room with a false floor over the pump so it can be used to live in.


Kitchen in upper apartment


For some reason the previous owners put washer and dryer connections in the extra bedroom. I would remove them so the upper would be 2 bedroom and move the washer/dryer connections to a different area of the house.


Another side pic.


Front pic

The duplex has been on the market for about 4 weeks. Since the reason for the sale is a divorce I was going to offer $59,000 or $65,000 with $5,000 back for repairs. What do you think?

The realtor stated that the tenants strongly want to stay in the building which is a plus. There is only 1 meter for the duplex so I would have to stay paying the utilities. The main heating is a old gas furnace which I would put out of service and install cove heating or electric base board heat as the upper apartment controls the heat for the whole place and it is hot downstairs. Also would finish off the downstairs apartment room to make it more usable and install newer window air conditioners as the ones there are really old and I know from experience that those old units are very expense to run. The foundation appears to be in good condition with some cracks in the plaster on the foundation and throughout the home but that can be expected for a 1930 something home.

Oh by the way my wife thinks I am crazy and is not happy that I want to do this but she said do whatever I want so that means YES right?????

Thanks for all the advise and input!

Moosie are you still interested????? PM me with your proposal.

You cpuld offer them 77K with 14K cash back at closing. That way you have an 80% ltv with no money out of your pocket and at 6.5% for 15 years you would clear $70 month after all ex. I wish I could do this in my home town.
Jay

Screw the Wifes thinking .... Tell her to fix you a Sandwitch and let you do the thinking... (I'm writing a book on how to stay married for a long time. That is comment #135, Use it, it works .. )

Seriously though, Here's one of my concerns. the cracked foundation. I had a house similar to that and when we had an inspector come out for the financing that almost killed the deal. Thank heavens for more than one inspector All the concrete in that place looks crappy. Inside looks OK but it could use alot of TLC. If, your Idea is to have it cashflow and make comercial later, you don't want to sink alot of coin into repairs.

the realitor should know whatthe buyers are gonig to accept. Ask him. If he is a Dual representation then he can share what they want you to know. tell him you are thinknig about buying it but it seems a little high for the shape it's in and say that from a cashflow standpoint and the money you want to put in for improvements you can only offer (?). Or, make a deal that they pay closing, Etc, whatever. Realestate is like going on a date. You can probably get what you want out of the deal but you need to word it right, or at least ask !!!

My Idea is this. It doesn't matter if the place is a bunch of Sun Dried turds glued together with the Juice from a SPAM can. If it cashflows, and someone is willing to pay the rent, it should be looked at

YAh, I'm interested. PM me yer # or drop me a line tonight. 208.571.1355 (I get free long distance so PM me yer # and I can call too.) We can talk in private. To many people looknig around here for real talk

chasendeer said:

You cpuld offer them 77K with 14K cash back at closing. That way you have an 80% ltv with no money out of your pocket and at 6.5% for 15 years you would clear $70 month after all ex. I wish I could do this in my home town.
Jay

Click to expand...

That amount of cash back probably can't be done ? Alot of deals are limited on the amount they can give back. Maybe there is a program I'm not aware of ?

Here is another option. If it appraises for the 77k mentioned above to do that option, try this instead: See if they will do a title Refi for you. They put you on title with a Remove clause in 'X' amount of days if you don't refinance it. (that way it secures them from you jsut staying on title. (Easy proccess) You basically do a refi on that house as you own. (You would be on title at that point) You won't need to come out of pocket with any coin if the Appraisers get it appraised for what you need it to... and , the rate is better. The people still make their money, Everyones happy.

YEs, that is a real deal.