Posted by Holly Hansen on June 10, 2008 at 09:28:35:
Hi Edwin,
Thanks so much for the advice!
To be honest, if these tenants were to move it would be pretty hard to replace them with more stable tenants, unless you were putting more Section 8 tennants in there. On that street alone there, over the last several years, a large number of forclosures -and some of the forclosures were on LLCs (investors)
On top of the fact, that I live half way across the country from the property.
I think for my first property, I should find something with a more stable economy but still gets cash flow.
Again, really appreciate your time and your advice!
Holly
Is this duplex a good deal? - Posted by Holly Hansen
Posted by Holly Hansen on June 07, 2008 at 09:08:12:
As this is my first investment purchase and it would be an out of state investment I would have a property manager continue to run, I would REALLY appreciate any feedback or input!!!
Duplex Located in Buffalo, New York
VERY Long Term Tenants (claim is 20+ years) in each unit are family (brothers)
Unit 1 - One is section 8 â?? check straight from govt. ($350)
One is on social security and is disabled â?? other pays rent cashiers check ($275)
Unit mix 2 x 2 bd/ 1 bth
Here are the numbers:
Price $26,000 (they will only accept cash) I can come up with about 10k in cash but would have to take a personal loan to cover the rest
Gross Rent: $7,500
100% occupancy consistently
Expenses â??
They claim annual expenses of $1975
OR â??
I have also ran through the scenario with the numbers on expenses based on 40% =$3000
Repairs known (before property inspection) needs new exterior and interior paint (additional $1,500), Roof is approximately 10 years old
The money seems small but consistent
There have been a lot of foreclosures in that area â?? some I can tell were investors
On the plus side, these tenants donâ??t seem like they are going any where soon.
When I ran the cash on cash return and looked at the cash flow it looks pretty good, even if you were to finance it at 100%
Holly, try to use your cash, and the loan, to close fast, and see if you can get the price even lower. maybe around $20,000. Before doing so, visit the tenants and tell them you plan to paint and fix up the place, but would have to raise the rent. (research what you think you can get beforehand). You want to guage their reaction to a rent raise. Chances are they would like to stay there, so it would take a big increase to get them to move.Their expenses of $1975 seem a bit low. Remember,they haven’t had any vacancies or bad debt losses with those long term tenants, so their numbers naturally look pretty good. I think you should still factor in potential losses from vacancies, but if the tenants stay, it’s just a bonus for you.
How’s the neighborhood? One mistake I made early in my career was buying in bad neighborhoods–because that was all I could afford. I made money, but I also spent years hassling and struggling with multiple tenants who came and went. It was not easy and very unpleasant at times. So, it’s not always about the numbers. The present owner might have gotten lucky with these long-term tenants. IF they were to move out, how hard would it be to replace them? You could be buying yourself a long term profit center, or it could be a headache with a constant stream of move-ins and move-outs.
If you do buy it all cash, try to refinance it to pull as much of your money out as you can. good luck!