Our newest renovation project: a value-add duplex
How we found it
Frustrated by the lack of two-family properties available on the MLS, I opened the Zillow app on my phone and set the search to our hometown, multi-family and price-reduced. One result popped up, which was a happy surprise. However, it was a bank-owned, 2-bedroom duplex listed for $284,000. Not a great deal. But the same property kept getting e-mailed to us. Price change after price change. And no buyers.
When the asking price reduced to $254,000, we offered $222,500.
The bank rejected it.
Time went on and they lowered the asking again to $239,000.
We offered $225,000 and they accepted.
The original list price was $299,000. We got it for $74,000 less!
I think the reason this duplex sat for so long is because it only had 2-bedrooms. But that's where we saw an opporunity to add value.
Forcing the value higher
1-bedroom units don't fetch high rents. But by converting each unit to 2-bedrooms, the appraised value and the rents will be forced up.
A 1-bedroom in this neighborhood can rent for a median value of $1350, depending on the finishes and amenities.
A 2-bedroom can rent for a median of $1750.
Converting both units to 2-bedrooms could add $800 to the property's projected cash flow.
In terms of the appraised value or resale value, I don't even know what a fully renovated 2-bedroom duplex would sell for in this neighborhood because there are none in the recent sales data.
However, I can tell you that a 4-bedroom duplex of similar square-footage could sell for $435,000 when fully fixed up.
Our exit strategy in uncertain times
Plan A: Flip it
After renovations are complete, our original plan was to sell this duplex. And we anticipated it would be an easy sale, since multi-family properties are in such high demand. Due to the high cost of living in our market, so many first-time buyers want the benefit of buying a house with rental income, but they are not necessarily ready to take on a large renovation. There are a lot of duplexes in need of repair available, but a duplex that is fully renovated and within a 5-minute-walk and 2-train-stops from Manhattan could be very enticing for New Yorkers looking to leave the city.
Plan B: Keep it
As of this writing, we are in the throws of the coronavirus pandemic. Market prices have not yet changed, but new listings and signed contracts have slowed dramatically. In 2-3 months when our renovations are complete, will re-analyze the current market value of this duplex. If we cannot sell it for a considerable profit, a very comfortable 'plan B' for us is to keep this property and rent both units out.
We'd like to list each unit at $1850/per month, but this too could change based on what's going on in the world.
The bottom line is this: we are prepared to hold this property for any amount of time necessary. You can read more about what we are doing to fortify our other holdings here.
In these uncertain times, earning income from a 'class B' rental property may be the safest place to be invested right now. People will always need an affordable place to live.