Expensive Duplex - I think it Works Well

I was hoping I could run some of the numbers and details on a rental property I will be settling on in June.  It is a little unique to the properties you own, but I think the basic principles you have laid out and I believe in are followed.  The details are as follows:

Purchase Price - 459k; All closing costs paid for by seller
Down Payment - 20%- 92k
Multi Family Unit - Duplex.  Unit 1 - 3 Bedrooms 2.5 bathrooms. Unit 2 - 3 Bedrooms 3 Bathrooms.
Brand New Construction - Very Modern, no need to invest additional money and all appliances come with the units, Roof has 10 year warranty, and standard 1 Year Builder Warranty on everything.
Mortgage/Taxes/Insurance Per Month - 1900 (The property has a tax abatement for 10 years so the taxes are less than 200 a year)
Rent Roll - Unit 1 - 1600-1800  Unit 2 - 1900-2100

So my cash on cash return is around 21%-26% and the cap rate is around 9%-10%. Wanted to gauge peoples thoughts on this property and if they would pull the trigger if they had the cash to put down 92k.  Thanks and I appreciate all feedback.

Comments

  • Posts: 4
    I forgot to mention that this will be my first investment property and I am dumping 80% of my savings into this property to cover that 92k.  Thanks.
  • Well, the 21 percent assumes that there are no other expenses ever. Even with new construction there will be vacancies and maintenance. I would account for at least 5 percent for vacancies and 5 percent of maintenance. That brings you down to 16 percent cash on cash. 

    The other big question is what do comps in the area sell for? Have oyu verified the rents? 


    Creator of Invest Four More
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  • How are you getting a $1,900 payment? I get almost $1,900 from a $370,000 loan without any insurance or taxes. Are there are HOA fees?
    Creator of Invest Four More
    If you want more help with your investing, check out http://investfourmore.com/blueprint-for-successful-real-estate-investing/


  • Posts: 4
    Mark,

    Thank you so much for replying to my inquiry.  I really appreciate your knowledge.  As far as my numbers on the mortgage I have the following:

    366k mortgage
    4% interest rate
    HOA - 0
    Taxes for the year - 200 (The property comes with a 10 year tax abatement, so the property is being assessed for its land value the last time it was assessed which was very low)
    HOI - 1275 for both units

    I did not include any costs for maintenance, at least in the first year because everything is covered by the builder warranty for the first year.  I bought a new construction house with the same warranty and everything was covered by the builder.  

    As far as the market, that it is my biggest concern as I am not a realtor with great experience, but based on similar units and the tenants I am friends with in the neighborhood, and the comps they rent at a minimum of 1800 a month.  I dont see the same unit for more than month on craigslist.

    Thanks again for your reply.
  • What do sales comps look like?
    Creator of Invest Four More
    If you want more help with your investing, check out http://investfourmore.com/blueprint-for-successful-real-estate-investing/


  • Posts: 4
    I thought I would update this thread now for everyone to find out how the investment property worked out for me, which I can say is going very well.  I can say that investfourmore helped me tremendously in identifying the right type of property and to make a move when the numbers make sense.

    At this point the property value of the home is at least 650k.  The area is Fishtown Philadelphia and has seen homes skyrocket in value.  The unit had tenants lining up at full price 2100 & 1800, tenants pay all utilities including water (water is in my name and the invoice forwarded to the tenants).  There were zero vacancies, the tenants moved in a whole month before the first mortgage payment was even due.  I have only spent $18.00 on maintenance costs for lightbulbs and an outlet cover.

    I have been actively searching for another property, expanding my search all over Philadelphia and even neighboring states, but I have found the same issue you ran into that have stalled my plans to buy more rental properties.  The numbers just dont make sense.  The same property sold today would be 650k, which would cut my cash on cash returns significantly.  I would even think about that price given the success I had, but they dont exist.

    I am reading about your flips, but that is a much riskier proposition in my mind mainly because I cant fix anything in a house and would have to rely entirely on contractors.  My question is how do you identify a good contractor?  Is this through your network?  Online?  there is some opportunity for flips, even flip and rent, but I am hung up on who to choose to do all the work.  Any insight would be great and thanks again for all of your work.
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