House #7: Some Details

February 3, 2009 · 11 comments

I’ve mentioned The Roach Duplex a couple times in passing, and wanted to throw out a little bit more info (and an exterior picture)…

The duplex was built in 1943, has 4 bedrooms and 2 bathrooms (2/1 on each side). It’s a side-by-side, one-story property, and probably needs about $20K worth of work to get it into rental shape. The roof is in good condition, but the exterior siding needs some work. The inside needs a good bit of cosmetic work, HVAC replacement, and perhaps some plumbing and electrical work (haven’t turned on the utilities, so I don’t know for certain).

My plan on this one is to hold it until I can resell it for a profit. I am purchasing it for $22K, and the tax assessment on the land alone is over $50K. I’m trying to sell it to another investor for about a $10K profit, and have it listed for sale at $33K. If necessary, I may decide to owner-finance (for a small premium), or worst-case, I would hold onto it for a couple years until the market turns, at which point I think this piece of land in this location will be a good bit more valuable.

Valued as an income property, I’m guessing it’s worth about $60K. This is based on income of $1000 per month (each side renting for $500), expenses at 50% of income (50% rule), and a cap rate of 10% (reasonable for this type of property in this area). This is what I’d reasonably pay for it in rental condition. So, if it needs $20K worth of work, I think a reasonable asking price is up to about $40K based on it’s income potential.

Valued using comps, it’s probably worth a good bit more. Other duplexes in the area are selling for $60-90K, and the tax assessment of the property is just over $120K (not very meaningful, but a data-point nonetheless).

Anyway, until I sell it or put it back on the MLS (which I’ll do after I close on it), I won’t really have much to say about this property. At this point, I consider it a longer-term investment…and am not in any rush to determine what it’s eventual fate will be…

Here’s a picture:

Front of Duplex

11 responses to “House #7: Some Details”

  1. bilgefisher says:

    I suggest a PO box to collect rents. Go by the post office stamped dates for late charges. Make sure the tenants know this. Its worked so far in my very short time as a landlord.

    Curious, if it is a low income area, won’t boarding up the place open you to liability and potentially more damage. In my area (low income Denver) Boards on windows just invite copper thieves, drug addicts and transients.

    You run numbers better then anyone I know, so maybe there is something I’m missing. Just seems to me this property would cashflow decently for your first rental.

  2. Hakrjak says:

    Looks like a nice house from the outside 🙂

  3. Mo says:

    Do you not want to wholesale it? Can you not wholesale it? I’d hate to see you have holding costs, but then again, it isn’t my “moula”.

  4. J Scott says:

    Bilge –

    The big issue here is that I really don’t want to manage any low-income rentals. Between the damage I’ll have to repair, the potential difficulty collecting rents, issues with potential illegal (or just plan negative) activity occurring on my property, etc.

    I hate to stereotype low-income renters, but I just have a feeling it would be more trouble then the $4K in income I’d be making per year.

  5. J Scott says:

    Mo –

    I’d love to wholesale it, but I haven’t been very successful at getting anyone interested at my price (which would be a $10K profit).

    I have a feeling that this neighborhood will see increased market values in the coming couple years (the rumor is that a Walmart is being considered down the street, plus it’s just a good central location to begin with), so I think my ROI — even with holding costs — will increase by holding it as opposed to selling for just a small profit now.

    That said, I may change my mind and do one of two things:

    1) Wholesale for a small profit if I decide the cash can be much-better spent elsewhere; or,

    2) Raise the price, but provide owner-financing, which should attract more investors who can’t come up with the cash.

  6. Bilgefisher says:

    I understand and don’t disagree. Just worried about the kind of trouble a boarded house brings. Hopefully your able to wholesale it and not worry about either problem.

  7. Steve says:

    Sill no wholesale action? Seems like it is a pretty sweet deal for someone who specializes in low end rentals. Have you visited any local REI Clubs? Sometimes they allow their members to present a couple deals. You should check out, I have sold a deal through this site (make sure you go in as an agent, it is cheaper).

  8. J Scott says:

    Still no offers on the duplex…

    I’ve only had a couple serious investors contact me, but apparently none of them thought the offer price was reasonable. It’s possible I’m just over-valuing the property, though from a cash-flow and from a land-value perspective, it seems to be a great deal.

    The other option is that no serious investors want to undertake a serious rehab for a low-income rental in this market, when they can find houses in much better shape that will cash-flow just as well.

    Another reason why holding and waiting for the market to turn (and the other crazy good deals to dry up) may be the way to go.

    Still trying though!

  9. Aly L. says:

    My insurance company gave me grief (and a cancellation notice) when my second rental was vacant for more than 2 months. Would your insurance company have no objection to insuring a boarded up/vacant property long term?

  10. J Scott says:

    My insurance company only provides very limited insurance for vacant properties (for example, no coverage for vandalism). Essentially, they would only cover natural disaster

    On this particular property, I didn’t even bother to get insurance, as their isn’t much that can be done to the property that doesn’t already need to be repaired.

  11. Aly L. says:

    My insurance company provides minimal coverage too, but they would refuse to cover a vacant house beyond 2 months. They cancelled, then reinstated, the policy when I got a tenant. And this was a property I paid cash for, no bank involved.

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