Duplex - is it worth it? - Posted by Jak


#1

Posted by Ari on November 06, 2009 at 18:43:21:

It does sound good. You need to calculate property taxes, and insurance. It does cash flow nicely, assuming you put 25% down. Just make sure you have a property inspector look at it before the close of escrow. The numbers do work though.


#2

Duplex - is it worth it? - Posted by Jak

Posted by Jak on November 06, 2009 at 18:08:07:

I’ve been offered a duplex for sale at $110k. The monthly rent is $1900 total. Utilities which I will pay for average about $250 total. I’d most likely have a loan of $82k, which is around $550 per month in payments. Let me know what you think. Thanks.


#3

Re: Duplex - is it worth it? - Posted by Joe Kaiser

Posted by Joe Kaiser on November 10, 2009 at 24:39:23:

The basic premise here is if you have to ask . . . you probably
shouldn’t be buying.

Spend some time and learn what makes a deal a deal, and then (and
only then) go out and actually sign one up.

Pretty good deal, btw.


#4

Re: Duplex - is it worth it? - Posted by Natalie-VA

Posted by Natalie-VA on November 09, 2009 at 09:49:33:

In addition to looking at monthly expenses and income, you need to look at comps for recent sales of nearby duplexes. An appraiser will often use the sales comparision approach to value a duplex, not the income approach. As an investor, you should use both.

–Natalie


#5

Re: Duplex - is it worth it? - Posted by Kristine-CA

Posted by Kristine-CA on November 07, 2009 at 09:42:35:

Are the units currently rented, and for how long? There’s numbers and
there’s numbers. The numbers that the seller says as part of the sales
pitch, the numbers they put on their tax return… and the real numbers.
Guess which one(s) you are looking for.


#6

Re: Duplex - is it worth it? - Posted by Ari

Posted by Ari on November 06, 2009 at 18:12:40:

Where is it located at? What shape is it in?


#7

Re: Duplex - is it worth it? - Posted by jak

Posted by jak on November 08, 2009 at 23:52:50:

The units are currently rented and by families that I know, so the monthly rent are correct. Does the monthly rent of $1900 make it worth the price of $110k? It seems like the numbers work out, but want to know what more experienced people here think. Thanks.


#8

Rare DPLX priced right - Posted by John Merchant

Posted by John Merchant on November 07, 2009 at 10:06:58:

Here in Puget Sound (WA) it’s rare that a duplex is a real buy and I’d say most are overpriced by would-be sellers.

Kristine is right on as you need to really study those numbers to see if it’s workable or not.

And of course learn ALL about the prop, its condition, location, etc.

Take nobody’s word for anything.

I was once hustled by a dentist and his conspiring banker (who was allegedly my friend…right!)on a little motel the dentist (and his banker buddy)was trying to dump.

I insisted on seeing his real numbers; unfortunately for them, his sorry accountant just couldn’t seem to get them together for me so I walked.

Wish I’d been as smart on all the commercial RE i’ve been offered, bought and owned!


#9

Re: Duplex - is it worth it? - Posted by JAK

Posted by JAK on November 06, 2009 at 18:26:44:

It’s located in Sacramento, CA. Good shape and currently has long term tennants who wants to stay. Good deal or not?


#10

Re: Duplex - is it worth it? - Posted by Kristine-CA

Posted by Kristine-CA on November 09, 2009 at 13:08:54:

Assuming there are no repairs needed upfront, the numbers look
good. I work my numbers backwards from 60% of gross rent minus
minimum desired cash flow = what’s left over for debt service. My
desired cash flow would be minimum $500.00. So my purchase price
would be $96K…no money down, seller financing at 7%. Your
numbers will be different based on your desired cash flow and how
much you want to put down. And if you want to manage it yourself.
Cap rates are great tools, but I find they don’t help me look at how
much money goes in and out of the checking account.

I’m still suspect of the rents versus purchase price. Is the seller trying
to sell via short sale. Everything I’ve looked into in Sac has much lower
rents. The better neighborhoods have MUCH higher selling prices. Why
is the owner selling? Sacramento is kind of a disaster these days. That
being said, paying tenants need a place to live and long terms tenants
in a cash flow property would be great!


#11

The acid test - Posted by John Merchant

Posted by John Merchant on November 09, 2009 at 09:12:49:

The numbers do look great but be sure and consider what you’d do, where you’d be, how you’d handle it if either or both Ts moved out and left you with a half or totally vacant property.

Could you make a few months pmts while you hunted for replacement Ts? With NO rent coming in?

Does the rental market there, in that location and locale appear to be sufficient to get you equal Ts when you have to replace them?

Are you financially able to do the cleanup & fixup when these Ts move out and you have to ready the units for next Ts?

I’ve seen a number of investors get themselves in trouble because they ignored or glossed over these tough questions and they came back to haunt them.


#12

Re: Duplex - is it worth it? - Posted by camgere

Posted by camgere on November 09, 2009 at 08:37:32:

These numbers seem too good for California. Let’s say your total monthly epenses are $585. I’ve allowed a 10% vacancy rate. Your CAP rate is 12.25%. Your ROI is 25%. These are excellent! Usually you compare CAP to Loan Rate or Annual Loan Payment/Starting Loan Balance. I refer to the latter as loan constant or X in my YouTube videos. Feel free to calculate your own CAP rate:

http://www.youtube.com/user/camgere#p/u/9/dyWgM-L4G04

http://www.youtube.com/user/camgere#p/u/11/_Ov__OR_mjU