Each unit is 1/1. They command about 475 a month in rent.
Neither unit is rented right now.
Prob need about $2000 worth of work.
Asking 85,000.
I planned on living in one unit and renting the other out.
I was thinking of offering $60,000.
Really good neighborhood.
A block from the Governor’s mansion.
What do you guys think?
I would normally offer less if it wasn’t going to be partly a personal residence.
usually offer less? Ur already takin off like 35% the original price which seems like a steal in itself.
Well like all the gurus say if you’re not embarrassed by your offer you’re offering too much.
is the 2K worth of work cosmetic?
Yes it’s cosmetic. Mostly painting.
The financial statements look good under the following circumstances:
You get it for 60K
The rents are indeed $475
You come to the table with $14,500
Rationale: 60K ask +2K repairs = 62K
Rents should be 2% of purchase price
$475 x 2 = $950
$950/.02 = $47,500 Maximum desired mortgage
$62,000 - $47,500 = $14,500 downpayment
Set it up like this and you will be very glad you did. If you don’t set it up like this, it is still possible if you have a steady monthly income of 1,300 to 1,700 but it does not look like an investment on your financial statements.
I forgot to mention it comes with an adjacent lot that I talk to a realtor about and he said I could probably get 35,000 for it.
In the above scenario, you’re buying your cash flow. The 2% often discussed on here is based on the entire purchase price; not the amount financed. In order to make this a better deal, you need to either get the property cheaper or raise the rents. If you can’t demand more than $475, you need to get it cheaper.
If you could in fact sell the other lot, that would make the numbers here look much better.
Moneymagnet,
Just because wooddell is thinking of offering X% off an asking price doesn’t mean much. Maybe the owner is already high on his price compared to what it’s really worth. Don’t base your valuation off how many % less than asking price you’re offering. Look at how the 50% rule is applied to proposed deals on here. You can usually nail down your property tax and insurance. Just about everything else will be an estimate. You won’t know how much you’ll have to spend for maintenance issues, how long the property will be vacant, etc.
With the fact that neither unit is rented do you think that I’m offering to much?
What makes you able to tell the true value of something? That seems difficult
I’m not saying I can tell the true value. I’m asking based on the amount of money it could pull in, is it a good investment at the price I’m willing to pay. It seems like it is, but I may be missing something.
Here’s the way the 50% rule would normally be applied for this deal:
Asking price is 85K
Market rent is $950/mo
Operating expenses are estimated at 50% of gross rent = $475/mo
The other $475/mo is for NOI.
NOI is your debt service and cash flow.
85K @ 7% for 30 yrs = $565.51/mo
According to the 50% rule, this deal would have a negative cash flow of $90.51/mo.
50% of gross rent for operating expenses is based off historical data from the National Apartment Association who surveys thousands of LLs across the country. They found over time that operating expenses were roughly 50% regardless of the market.
So ur paying 475 per month to maintain and 565 per month on the mortgage. So the rent is 90 bucks less than that so ur losing on the deal unless u offer 60k or somethin right?
This seems pretty easy to calculate, is there much more to it? Or is actually making it work out the hard part?
Here’s how it would look with a purchase price of $60K and $2K in repairs.
Gross rents: $950
Operating Expenses: $475
NOI: $475
Mortgage ($62K, 30 yr, 7% NOO): $412
Cash flow: $63 or $21.50 per unit per month, which is WAY TOO LOW for me. I won’t buy a rental unless I can get $100 per unit per month.
At $100 per unit per month of cash flow and $2K in needed repairs, the most you could pay for this property is $39,334! This property is priced at more than double what is needed to make it a successful rental.
Good Luck,
Mike
Is the vacant totally irrelevant to the purchase? The lot is worth 35K.
So I was thinking…
39K maximum for the duplex and 35K for the lot puts me at 74K deal that I would pay 62K for?
Or should the lot not come into play here?
Wooddell,
If you are planning on occupying one of the units then you would qualify for a much lower rate as well as a lower down payment. A 60K purchase price with 3.5% down would give you a loan amount of $57,900 with a P&I payment of $310.82. However you would lose the income from being able to rent out both sides. But even then $475 x 50% is $237.50 so you would be -$73.32 per month but you would more than make that up by your savings on your own rent. Plus once you move you will still have the low rate so using property managers formula you would be making $82.09 per unit which is still not the $100 that property manager likes to make but it is still decent, and who knows by the time you move you may be able to get more in rent than $475. Hope this helps.
That helps a lot. Thanks Chris W.
But again I ask all when investing in a property like this do we not look at the lot as a factor in the deal or is that just a bonus we take after everything else works out?
That depends on the lot itself. Is the entire property surveyed as one lot? If so, then you will probably have a hard time getting a partial release from the lender for you to sell seperately. If it is already surveyed off as a seperate lot and not included in the value of the property then you can consider it as extra value because you will be able to either sell it or build on it without a partial release. Hope this helps.
I forgot to mention it comes with an adjacent lot that I talk to a realtor about and he said I could probably get 35,000 for it.
You need to ask the city or county about subdividing the lot. The realtor would probably tell you that the lot will blast off and fly to Mars if he thought it would sell the property.
If the lot can be subdivided, and you can build on it or sell it, then yes, you can take that into consideration, but do your homework! Make sure that you can subdivide and build or sell. Then get all of the numbers, and run your rent to mortgage ratios again.
How would you find out if you could subdivide?