My details are not so great because I just now heard about the property but the deal sounds great on paper so I need to act fast here.
The property is $110,000, seller is willing to finance $40k @ 7.5%. It is a duplex with 6 rooms (2 on one side and 4 on the other). Here is the part I need some advice on, the current owner is renting each room on an individual basis. One side is totalling $215 per week and the other is $430 per week. Owner pays all utilities which are $250-350 per month for electric, gas and $35 per month water. There is a property manager who lives there he wants to stay and his current agreement is free rent but he takes care of everything (repairs, grass, billing etc).
The property was tax assessed in 2000 for $135,000, owner believes it will appraise for more. Comps in the area are 140-160k.
So here are my numbers:
Finance Amount $110,000.00 ($40,000 of that via seller fin)
Mortgage $769.00 (estimate at 7.5%)
Rent $2,795.00 / month
Vacancy (5%) $139.75 / month
Management $included in rent / month
Property Taxes $94.03 / month
Utilities $385.00 /month
Maintenance (10%) $279.50 / month
Total Cost $1,722.28
Monthly Cash Flow
$1,072.72 /month cash flow
Things I would demand in the offer:
Appraised value contingency
She claims that it is extremely easy to occupy; says she doesn’t even answer when she does have vacancies she gets so many calls she just has the management person screen them. I am taking all that with a grain of salt of course.
Moving forward I am going to drive by the place tomorrow and if I like what I see I am going to write an offer and close asap. We shall see! It seems too good to be true and you know what that means. :o
Well, you didn’t really ask any questions, so I’m not sure what advice you actually need, BUT…
You say 6 rooms, 2 on one side, 4 on the other. By rooms, I’m assuming that you mean bedrooms, correct?
Weekly rentals and individual rooms:
The problem with both is that they have a VERY HIGH turnover rate. That being the case, I’d figure higher than a 5% vacancy rate. However, since it is a weekly rental, you may be able to get new renters quickly (as stated).
The problem with individual rooms in particular. First, does each room have separate keyed locks? If so, then what you’re buying is NOT a duplex but rather a boarding house. In most cities, there are special rules/laws concerning boarding houses. If that is the case, I’d want to know if this is being run legally or illegally.
Second, since you’re renting specific rooms, are there any common areas? If so, how is it handled?
What are the rents on a standard duplex in your area for a 2 bed and 4 bed? Whether or not you’re planning on continuing the way it is, I’d still make my offer based on a more conventional method of renting.
OK great…sorry I didn’t ask any questions. I was looking for exactly what you mentioned to me and I thank you. My biggest worry was that I was overlooking potential red flags when it comes to renting per room instead of per side and I will further check into that.
If this is a nightly, weekly or monthly thing the question I would have to ask is how much management is involved? Sure the numbers look great on the other hand this could turn into almost a full time job.. (and everyone here knows how I feel about work LOL) Lets say realistically you would be there 2 hours per room per week so that is 12 hours a week multiply that times 4.3 weeks a month so 51.6 hours a month divided by 1,072.72 . So that is $20.78 an hour. Of course you need to take into consideration drive time and taking away from family time at night!
So how is the appreciation in that area?
The appreciation is fairly decent (it’s right next to a huge and upcoming park that was featured on CNN for its potential). It is an older building (built in the 1920’s but almost looks like a cathedral).
The numbers I posted include a full time manager. Right now he lives for free and his room usually rents for $90 per week (which I did not include in my numbers). Hopefully I will find everything else out tomorrow.