Hey guys,
I’m looking into a duplex that is for sale thru a realtor that I have been working with. I don’t know any of the specifics yet as I’m getting all the due dilligence info on Monday. However I wanted to ask you folks what questions I need to ask. Thanks in advance,
Nate-WI
Off the top of my head…
Are the units metered separately for water / gas / electricity (anything that’s not metered separately you’ll end up paying)
Is it occupied? If so, what are the rents, when do the leases end, how are the tennants, how long has each tennant been in place. Can I have a copy of the lease agreements.
Is the owner interested in seller financing? Definitly a possibility since (s)he is most likely an investor.
Plenty of other questions, that I’m sure others will chime in with, but that should get you started.
Here is what I do know…
The duplex has updates including windows, vinyl siding, furnaces, porches, electrical and interior decorating. The lower unit is leased at $490/month and the upper is vacant but was renting at $425/month. The tenants pay for utilities and each unit has three bedrooms and recent flooring and paint. The mechanicals are separate for easier management I would guess.
No pets are allowed.
Each unit is a 3 br, 1 bath
Taxes are 1800 bucks a year
1800 square foot
No garages for either unit
Seller is willing to give me two months vacancy money to find a tenant for the upper unit.
One more thing…he’s ok with nothing down!!!
Its about 3-4 minutes from my home and the seller will do owner financing with very easy terms with a short balloon. He is asking $86K for it. I don’t know what it appraises at or comps yet. Will have that info early next week. If I got good terms I would imagine I should be able to positive cash flow on this. If we complete a note deal what do you think I should propose for terms? Interest only for a year and then re-fi, pulling equity out of it then? Quarterly payments? Alot will hinge on what he wants but I need to bring an offer to the table so we can start talking about it. Looking for anyone’s thought’s on this?
Nate
I always ask for two years of rent rolls, maintenance, and management records. Never use the current lease or what the seller says as your rental analysis.
Have the agent do rental comps. MLS often has a leasing section, so they can do a search for that type of property in that area to see how long units are vacant and what the rents are. You can also check local papers online or offline to see what other landlords are asking for.
Make sure you write into the contract that all deposits will be paid to the buyer on or before closing. I’ve heard about deals where the tenant’s deposits were not transferred because it was not included in the contract. If the tenant doesn’t have a decent deposit, that spells trouble already and maybe you can negotiate to have additional funds provided to you out of the transaction.
The next question I would ask myself is why this duplex and not the duplex down the street? Is it because of cash flow? Is it because it is a fixer? Need to know your enter and exit criterias.
joseph
i guess i dont know what your planning on doing for your contract , but this is what it will look like if you did traditional financing
$86,000 @ 7.5% interest for 30 yrs = $602 per/month
Taxes = $150 per month
Insurance= $700 per year or $58 per month
602+150+58 = $810 per month
If you getting $490 + $425 your have income of $915 per month
You would have roughly a positve cash flow of $95 per month, but this does not include management fees, maintanence fees or a vacancy factor. You factor all that in and you will probably be at about break even point. depending on what you do with the owner financing, it might be an ok deal to do, and you could possibly go with a interest only loan to make it cash flow. Theres a couple other people here that can break it down a lot better than i can. Good luck
And it sounds like it could take the unit 60 days to rent out, so he needs to factor perhaps 3 months per year for vacancy loss. Each time you replace a tenant, you need to include make-ready fees as well. It can sometimes be pretty expensive depending on how well the tenant keeps the place. Even if you have a deposit, you can’t necessarily bill the tenant for “ordinary wear and tear”, such as worn carpet or painting.