OfflineOk so here are the numbers on a duplex that I am looking at possibly purchasing and renting out.
Each side is a 3/1 with approx. 1100 sq. ft.
It brings in $14,400 annually.
The asking price is 65K, but I think I can get it for a lot less.
The numbers give a 26% cap rate which is very good.
I understand that I havent factored in maintenance, etc. but at 26%, it still seems like a great deal regardless.
The only drawback is that it isnt in the greatest of neighborhoods. The city has been making strides in upgrading the neighborhoods and infrastructure however.
From outside pics, it looks to be one of the nicest properties in the neighborhood, but I plan on driving by it tonight.
According to the auditors website, the last appraisal was approx. 77K.
It is already occupied so I wouldnt have to find new tenants unless I really wanted to.
But now here comes the hard part, financing! I dont have 10-15K sitting in my account for a down payment so I would need to use the equity in my current home or go a different route for payment.
I would greatly appreciate any comments or suggestions from anyone in the DG family!!!!!
Thanks so much!!!!
Well obviously we can't calculate anything to do with maintenance because I personally haven't seen the property (and to be honest I wouldn't know if I had haha).
But what we can do is see how much you can refinance for. Let's say the bank will allow you to refinance for 80% of the appraisal. If the appraisal really will come in at 77k then they would finance you for $61,600. So if you can get it for less than that you are doing really good. Correct me if I am wrong, but appraisers use 3 things when determining value. Income value, replacement value, and comparable sales value. Replacement isn't necessary valid here I wouldn't say. But if my calculations were correct, which I believe they are, then the income value is $86,184 and the comp value is apparently 77,000. So averaged between the two it comes up with $81,592.
Regardless of what I previously wrote, let's go with the $77,000. Have you asked the owner about carrying the note? If the owner is willing to finance the sale with a down payment you could find the money through private money, a small bank loan, hard money lenders etc. Then once you acquire the property and close you can refinance immediately with no seasoning. Assuming the appraisal for the refinancing comes back at nothing less than $77,000 then they would most likely at least give you the $61,600.
Hope I didn't make myself look like an idiot and made some sense haha.
Success and Nothing Less!
I guess my first question, is.....
How motivated are the sellers? Will they work with you.. or maybe do an owner finance? Maybe. Maybe not, I mean, after all they are renting it out and getting a stream of income. Anyways it never hurts to ask. And do that due diligence, makes making an offer that much easier when you know whats "wrong" also if they neighborhood isn't that great you can factor that into your asking price.
A couple of ideas pop into my head though.
You COULD pull equity out its not entirely a bad idea, maybe not bad at all if your well prepared. Just make sure your numbers fit for the duplex, ya know... insurance, tax, maintanence, payments for the equity, payment for the new mortgage, etc. so that way nothing comes outta your pocket
We all like that idea... If you go that route, I'd make them sign a lease if they seem like deem-able tenants, if they have been there for awhile they probably won't care cause they probably aren't leaving anyways and if they haven't, lock them in with a year lease...
You could ask Family members or friends for the money if at all possible... but you can't just ask for the money, make it profitable for them as well, I mean it is a business transaction after all... offer them a small extra percentage back for every payment.. say 5%... not much, that's an extra 5 bucks in there pocket for every hundred, but if you give them a proposal on how it looks like as a whole... say 5000 and they would get an extra 5% percent return on that factored in to the monthly payment... thats not bad and it sounds good and they are more likely to say yes. And thats just a small cut, which could easily be factored into rent. I'm actually doing this one with a really close friend who has excellent credit, needless to say, mine is crap... but she enjoys the little extra I give her every payment.
Try going thru a different lender for a less down payment... Maybe a mortgage broker. Or a ma and pa bank. I went to 3 major banks all wanted 10-15% down, then found another smaller bank and only wanted about 6%... Literally the difference of THOUSANDS of dollars in down payment money. (In fact my needed down payment was a little over 3500 compared to one bank for 7500 and another wanted 10K straight up lol!!!)
Anyways that's just a few I can come up with in a quick 4 minute brainstorm... If you Think A Little Different
honestly sky is the limit!!!
You'll get that Duplex, you already took action and that's like 99% of the battle!!!! GREAT!!!!!!
Good Luck BBandKK!!
Knowledge is Power
- Pimpedoutgeese
Allow your fear to gently pass. Then genuinely ask yourself,
“What needs to be done?”
First of all thank you both very much for the insight.
The house is listed through a RE company so I havent spoken with the seller regarding any payment options.
I am meeting with some bank reps next week to discuss some financing options as well. Unfortunately finance is not an area where I am knowledgable so I have a lot of learning to do!
If I have to use my current equity, I am confident in being able to comfortably make payments on it as well as the other two mortgages but wasnt sure if this was the smartes way to go, once again my finance expertise falls short.
Unfortunately friends and family arent an option at the moment. So I will be knocking on all the banks' doors and see what kinds of options they will offer.
Thanks so much again!!!!!
Not a problem! Let us know how it goes.
Success and Nothing Less!
Yea!!! Let us know!
As long as the numbers work and are concrete... There isn't really a bad idea per se...
I, myself, am in the process of buying a duplex. Just keep in mind that there might be a time where you don't have tenants. If your more then comfortable to hold the note on the equity, which I believe you said you were, then I think you'll be just fine! Give it a shot!! GO FOR IT!!!
Knowledge is Power
- Pimpedoutgeese
Allow your fear to gently pass. Then genuinely ask yourself,
“What needs to be done?”
We are getting pretty excited about it. We are going over to look at the property tonight as well as going to a local bank to talk about financing so we will see how it goes!!!! Just hoping we don't walk through the door to find a dump!
I will keep you posted! And good luck with your duplex as well!
You can always back out if you know that it'll cost WAAAAAY too much to flip and it's outside your budget... Patience and Fierce! Too many deals to worry about losing just one!
Sounds good, Can't wait!!!
Knowledge is Power
- Pimpedoutgeese
Allow your fear to gently pass. Then genuinely ask yourself,
“What needs to be done?”
How did the property look? Do you think you're going to move forward with the deal?
Success and Nothing Less!
Well good news and bad news....
The property actually looked better than I expected on the inside so thats the good news! One side needs drywall work here and there but nothing drastic. Also on this side, the furnace looks ancient so it might need replaced soon. There are no appliances so we will need to furnish some of those.
The bad news, and I guess isnt that bad, but contrary to what we were told, both sides of the duplex are vacant. So if we proceed and end up getting it, we will have to find some worthy renters which can be a pain but thats part of it!!!
As for our bank visit..
We spoke to loan agent at a local community bank and she would not budge on 20-25% down for a loan regardless of the amount and our credit, etc. So it looks like we will need to dip into our current home's equity which isnt that big of a deal.
Our agent is going to do some follow up questions for the seller such as why they are selling, etc. So we shall see!!!!
Thank you for the concerns on how we are doing with this!!! I will keep you updated!
~BnK