It’s possible to buy rental property in the $500,000s around the coast, but they tend to come with other baggage; like spending 3 months to convince the tenants to move, plus three additional months for repairs:
Joys of Duplex Ownership
by Jim the Realtor | Aug 13, 2010 | Real Estate Investing | 14 comments
What river is that I hear?
With that bathroom setup (.75 down, 1 up), it feels more like a 3bd/1.5 bath.
Does that small 3rd bedroom have a closet? it looks tiny.
I would have put the laundry down, sacrificing the shower for a stacking set, or expanding into the dining room for a laundry closet.
then you could put a second bath into the laundry space up.
That would give you a much higher rental rate for the 3/2.5
Here’s how I see this.
Acquisition price $575,000
Rehab $100,000
Rent loss $15,000 (3 mo @$5,000). Assumes Jim the Property Manager collected from both sides for 3 months. $22,500 if the second side was vacant for the first 3 months. No leasing commission because Jim the Leasing Agent included it in his full service buyer’s agent commission.
All in: $690,000
AGI $60,000. Assume for comparison purposes water is included in most of these duplexes (not separately metered) so the GRM is not distorted.
GRM: $690,000/$60,000 or 11.5
OAR (cap rate and free and clear yield rate):
Vacancy and collection loss 8%
Taxes around $6,500, including assessments
Insurance around $1,000
Maintenance/repairs (new roof, hot water, appliances, but furnaces not mentioned) $2,400
Water bill $2,400
OAR based on cost 6.2.
Let’s hope the buyer’s interest rate is less than 6 percent or his/her leverage is negative or at best neutral.
My question is about the buyer’s plan. Can the buyer flip this for a profit today (higher GRM, lower OAR) or is the intent to hold?
As a renter, I would not take that place for 2.5k. I would only consider renting it at 2.1k a month or less. There are plenty of listings for Encinitas on craiglist for 2k or less. Unless there is something very desirable about the location, it would not deserve a premium price in for the features displayed.
The elementary school for the neighborhood is Ocean Knoll, one of the lowest rated in Encinitas (based on test scores), but its getting better.
Gardena…next to El Nopalito (great food, BTW) and the freeway.
To be honest, if I were looking to buy this property as an investor, I would figure on $1,600/month rent per unit, max. By keeping rent at that level or below, one could keep long-term tenants and probably not have to worry about the tenants piling up three or four to a room.
That’s not an “upscale” area, (that’s putting it nicely), so don’t think it would rent for $2,500 unless one is willing to take in multiple families per unit, which would raise maintence costs and would probably lead to a higher turnover rate at that price. Just being honest.
Yeah, I would hope for $2k a month and get the rest of the return from inflation.
Get the chips and salsa from El Nopalito — they’re awesome.
Nice job on the remodel, but that is a funky layout, with the second bath downstairs. Also, since small kids take baths, you can’t even make them use the downstairs with the parents using the upstairs, since there’s no bathtub down-either the parents have to use the downstairs as well, or everybody shares the upstairs. Not much point to that shower-I agree with FreedomCM that it feels like a 3/1.5 instead of a 3/1.75. The shower down made more sense back when there was also a bedroom down.
You can characterize the neighborhood as “unpretentiously wealthy”. Lots of long term residents. There are 2x1s up the road going for $1700 with long term tenants. You could do $2K here. And Ocean Knoll is just fine as a school.
I was thinking $2000-2100….
Yes I agree no more than 2K/month should be forecast
Late to the game here; been out of town for a week. We live in a 2400′ *detached* house in Solana Beach (nicer area) and we pay $3100. No way that is gonna rent for $2500. Not if you expect long-term tenants.
We paid $1650 for a similar place in San Jose. I’d say $1750-$1800 if you want to go a bit low or $1950 if you want to go on the high end. Would not go above $2K.
-Erica
So, how much did it go for?
We did the $2,500 for 3-4 days, dropped it to $2,100 and got it a couple of days later. Had three applicants willing to pay it too.
Thanks for the advice everyone!