Every time I find a project I post it here to see if I’m missing anything. Hopefully, I’m not bugging everyone. Ok here is the deal:
Property is one acre. It has 2 br 1 bath approximately 1000 sq ft. The property also has a duplex 1 br efficiency each side. Total rehab cost on both house and duplex is $10K. The project was originally listed for $65K but reduced to $55K. This property is for sale to settle an estate. I offered $30K. They countered with $45K. We are still in negotiations, but I think about $40K is where we will be. My plan is to survey out the house. My banker and realator think after rehab of the house I can sell just it for $55K to $58K. I would retain the duplex and have no debt on it. The remaining property has sufficient room for another duplex (probably 3 br each side). I will need to go through city counsel on this. My banker is telling me construction cost not including land is $63 sg ft. So, if the new duplex has 1000 sq ft each side my loan will be about $130K at 8% for 25 years puts my payment about $1,000. Rent would be $250 each on efficiencies and $550 each on 3 br duplex for total rent income of $1,600. The following is the numbers:
Rent $1,600 times 12 months $19,200
Vacancy at 5% 960
10% maintance 1,920
8% property management 1,536
Taxes & insurance 1,000
NOI $13,784
divided by 12 months 1,148
Monthly payment on loan 1,000
excess cash flow 148
OK here is the numbers if I keep the 2br house and rent it out and dont build a new duplex:
Rent on House (450 times 12 months) $5,400
Rent on efficiency duplex $6,000
Total rent $11,400
5% vacancy 570
10% maintance 1,140
8% property management 912
taxes & insurance 1,000
NOI $7,778
divided by 12-months 648
Monthly payment on $50K loan
($40K purchase plus $10K rehab) 385
Excess cash flow 263
Ok this is the cash flow if I sell the 2 br house and dont build a new duplex. The only asset left is the efficiency duplex with no debt.
Rent $6,000
5% vacancy 300
10% maintance 600
8% property management 480
Taxes & ins will be less
lower property value 500
NOI $4,120
Divided by 12 months 343
No debt so cash flow to me is 343/month
From a purely cash flow analysis I’m better off selling the house and not building a new duplex. But, if I build a new duplex renters will build equity for me each month. Also, I think the value of the property with 2 duplexes will be greater than $130K if I decide to sell. Using the income approach of appraisals (assuming a 10% cap rate) would put the value at $137,840 (NOI of $13,784 divided by 10%).
Am I missing anything?