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Short Summary
Main recommendation: Do not buy this duplex at the $325,000 asking price, but make an offer around 10% lower (about $300,000) to reach an estimated 8% cash-on-cash return, which the speaker would then consider buying. The speaker, Dave Meyer, says the deal's 6% cash-on-cash return is below his buy box because the property was already fully renovated, sits in a less desirable area, and offers little room to force appreciation.
Key Points
- The duplex is a side-by-side with two 3-bedroom, 1.5-bath units, estimated at $1,800 rent each, which is above the 1% rule at the asking price.
- The seller's business partners are dissolving their partnership because they don't like working with each other, and they did much of the rehab themselves, raising a question about work quality.
- The property manager's conservative rent estimate of $1,750 per side still meets the 1% rule and yields roughly 6% cash-on-cash after repairs, CapEx, taxes, and insurance.
- Meyer's buy box requires at least break-even cash flow and a hybrid of cash flow and appreciation upside, and this deal falls just below that box because there is no value to force.
- Meyer underwrites about 2% annual market appreciation, below the long-term historical average, and would accept lower cash-on-cash only in a neighborhood with strong growth drivers.
Details Worth Noting
- Concrete instructions: Check the rehab scope, including exterior upgrades (new windows, roof, gutters, paint, exterior lighting) and interior upgrades (new kitchens, half and full baths, appliances, and flooring in both units), since these reduce future CapEx.
- Concrete instructions: Verify rents with your property manager, since that person will list the unit, and be conservative in the estimate.
- Concrete instructions: Run the full analysis including repairs and maintenance, CapEx, taxes, and insurance before deciding, rather than relying on the rent-to-price rule alone.
- Concrete instructions: Make an offer about 10% below asking price (roughly $300,000 here) to lift cash-on-cash toward 8% and create more equity upside.
- The property is on a busy street and a little south of the area Meyer normally buys in, which he considers a drawback.
- The area has some business investment, so appreciation is possible but not guaranteed.
- Meyer's framework treats cash flow and appreciation as a spectrum, not an either/or choice, and says the weakest position is low on both.
Bottom Line
The duplex works only at a discount: at its listed price the return and appreciation potential fall short of the speaker's standards, but a roughly 10% lower offer would make it worth buying.
