Posted by dealmaker on April 03, 2005 at 08:03:51:
It’s early and I’m still fuzzy from “spinging forwar”, but IMO taking out a ridiculous loan doesn’t change the numbers on a bad multiple. There are two things that do, lowerpurchse price or higher monthly rent. Before you take another step you need to find out what the TRUE rent numbers are, that’s something that you can’t control.
With an $85K average comparable I don’t think a $79K unit, that needs at minimum paint and carpet, isn’t even worth a trip across town to look at. Heck if it were close to a good deal any “investor/realtor” would be jumping on it.
An investor/realtor friend showed me a two story brick duplex with 3 beds and 1 bath w/basement that was originally listed for $87k and recently reduced to 79k after 80 DOM. The 1080 sq ft unit for sale is only 1/2 of a duplex. The street has a few dozen of these duplexes and each unit is sold separately as a SFR.
Recent comparable sales per unit show $85k average. Non of the duplexes on the street appear to be vacant and there are no For Rent signs posted. Seller has updated windows, roof, furnace, HWT & electrical box but the interior looks like 1970. Paint and carpet would clean it up nicely.
The seller just got divorced and wants to get rid of this bad memory so he can move in w/his new girlfriend. Public records show seller has a note for $32k.
I am not sure how to determine valuation on this property since I have not owned a rental property before. My investor/realtor friend says rent should be $850-$900 but I have not confirmed that.
If I purchase around $75 or less I’m walking into some potential equity but the GRM is only 7ish ($75,000 / ($850 * 12) = 7.3) and I thought 3-5 was the target number. Will an interest only arm be an effective way to increase cash flow?
Let me know how I should feel this deal out, or how to put a better deal together.
Re: 1/2 Duplex - Need Advice? - Posted by Natalie-VA
Posted by Natalie-VA on April 04, 2005 at 13:38:49:
Brian,
The value of a duplex should be based on nearby comparable sales from the last 6 months. In my opinion, GRM and CAP rates only apply to multi unit commercial deals.
With that said, you should look at value two ways:
nearby comps
potential cash flow
After you find the nearby comps, subtract at least $2 for every $1 you will spend repairing. Even better, many on this site would prefer you take the after repaired value x .70 minus repairs.
You also have to find our what market rent is. Your mortgage payment (PITI) should not exceed 75% of your market rent in order to account for vacancies and repairs. So, if market rent is $800, your payment should be $600 or less. An ARM would increase cashflow, but might not be a good idea if you’re planning on holding this property long term