Since I actively invest myself, I speak the same language as my clients. Unlike traditional mortgage brokers whose only experience is the purchase of their primary residence, I approach funding with the investor mindset.

Two Key Questions I Always Ask:

1. What’s your real estate investment experience?

2. What’s your middle (average) FICO score?

These two factors heavily influence the interest rate and loan-to-value (LTV) ratio a lender is willing to offer.

In this case, the investor is relatively new, with two completed flips under her belt. She is a Tier 1 investors. But, she does have a solid FICO score above 740. That would definitely work in her favor.

She was referred this duplex by an agent, but being from out of state and unfamiliar with the local market, the agent put her in touch with me to explore financing options.

The Property: A Closer Look

This is a legal duplex located on the south side of Birmingham in a C-class neighborhood… at best. That may sound like a red flag to some, but done right, investing in C-class areas can be highly profitable. Personally, I own at least 10 houses in similar neighborhoods, all occupied by Section 8 tenants—and they consistently perform well.

The Renovation:

From the photos, it looks like the current owner did a solid job renovating:

• New kitchens with stainless steel appliances

• Modern contemporary style bathrooms

• LVT plank flooring

• Updated fixtures and paint

• Central AC

• Dedicated laundry rooms

Each unit is 2 beds/1 bath, 850 sq. ft., and currently rented for $775/month. That is $1550 gross rents.

First Look

Before running any numbers, I always start with a look at the property via Google Street View. The last image was captured in November 2023, so it’s likely still the same.

Unfortunately, my first impression wasn’t great:

1. It’s on a very busy four-lane road—expect traffic noise.

2. It’s next to a vacant lot that looks like a neighborhood dumping ground.

3. There is a used car lot two doors down.

So, curb appeal and location? Not ideal.

Let’s Talk Price

The asking price is $196,500, recently reduced from $202,100. That may seem high, especially considering:

• No duplexes in the area have sold in the past 24 months.

• A few single-family homes have sold in the $170K–$190K range.

• There are several active high-end flips listed between $195K–$265K—most sitting on the market for over 90 days.

• The nearest “comp” is a 4-bed/3-bath SFR that sold for $192,500—but it’s in a different neighborhood, so not a great comp.

In short, I can see how the seller arrived at their price—but that doesn’t make it a deal.

Does It Cash Flow?

Assuming the duplex appraises for the full asking price, here’s a quick financing scenario:

• Purchase Price: $196,500

• Loan Amount (80% LTV): $157,200

• Estimated Taxes & Insurance: $3,000/year

• PITI (7.5% rate, 30-year amortization): $1,349.17/month

• Monthly Rental Income: $1,550

• Cash Flow (before reserves): $200.83/month

• DSCR: 1.18

At first glance, this looks like a financeable deal. But there’s more to the story.

Operating Expenses You Can’t Ignore:

• Property Management (10%): $155

• Maintenance Reserves (10%): $155

• Vacancy Reserves (5%): $77.50

• Total Operating Costs: $387.50/month

Adjusted Cash Flow:
$200.83 (initial cash flow) – $387.50 (expenses) = –$186.67/month

So… Should You Buy It?

If you’re a seasoned investor who:

• Has physically walked and inspected the property and really know what to look for in the renovations,

• Believes no major repairs are needed,

• Plans to self-manage,

• Can reasonably waive vacancy reserves,

…then maybe you could squeeze out some positive monthly cash flow.

But if you end up needing a new HVAC system or roof, a single $6,000 capital expenditure would wipe out 30 months of profits.

Just because a bank will finance a property doesn’t mean you should buy it.

Would you buy this duplex?

Oh by the way, the current DOM for this listing (as of August 4) is 275 days, or 9 months and 16 days.

Still interested?