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Connor Dunham
  • Investor
  • Anchorage, AK
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Negative $150 per door cashflow to positive $200 per door. Too optimistic?

Connor Dunham
  • Investor
  • Anchorage, AK
Posted Sep 28 2014, 16:54

I purchased my first property back in January. I waited to post until I had a good record of the utilities and expenses. The property is a 3000 sf side-by-side duplex built in 1985 near the university and hospital here. It is a 3 bed / 1.5 bath on one side and 2 bed / 1.5 bath on the other. The layout is symmetric except for the 3rd bedroom is above the garage. I owner-occupy one side but treat the side I occupy (and monthly expenses) like any other rental unit.

Purchase Price:$390,000

Purchase Closing Costs (buyer paid): 7,883.39

Total Price: $397,883.39

Down Payment: 39,000 (10%)

Rate: 4.5%

P&I: $1,778.47

Expenses:

PMI: $ 242.78

Taxes: $454.65
Insurance: $113.19

Vacancy (2%): $68.00 (very good market here)
Repairs (8%): $275.00

CapEx (?%): Not factored in. I read you need 6 months PITI (which I have), but haven’t researched the local costs yet.

Gas: $277

Electric: $28.10

Water/Sewer: $163.31

Expenses Total: $1622.05

Current Rents: $1600, $1500 = $3100

NOI: $3100 - $1622.05 = $1,477.97 -> $17,735.64 per year (including PMI)

Expense:Income -> 52.3%

Cashflow: 3100 – (1622.05+1778.47) = -$300.52

The -$300 cashflow is how the property has been performing since I bought it in February. Since I already have a decent fund for repairs and CapEx, I have been skipping the repairs withholding. Obviously not sustainable long term either.

Total Return for the first year: -3,600(cashflow) + 5,694(equity) + 24,375(6.2% appreciation) + 4,000(tax break) = 31,000

Total paid for property: 46,883.39

Total ROI for first year: (total return/total paid) = 66.1%

There are two things happening in April 2015: Getting a new appraisal to drop the PMI (the market prices here have been growing at 6.2% year over year) and the raising the rent to market rate.

Market Rents: $1750, $1600 = $3350

NOI: $3350 - $1379.15 = $1970.85 -> $24,250 per year

Expense:Income -> 41.2%

Cashflow: 3350 – (1379.15+1778.47) = 192.38 -> 96.19 per door.

There are two projects I have planned for the property in the near future: replacing the 30 year old boiler with a high efficiency one (should knock $100 off heating) and converting the 2bed/3bed configuration to a 3bed/3bed by adding 1 wall, 1 window, and 1 door by splitting the extra large bedroom above the garage. After both of these improvements are implemented the property should perform like:

Market Rents: $1750, $1750 = $3500

NOI: $3500 - $1279.15 = $2220.85 -> $26,650 per year

Expense:Income -> 35.5%

Cashflow: 3500 – (1279.15+1778.47) = $442.38 -> $221.19 per door.

That’s my plus side analysis. My down side (do-nothing) analysis looks like (with rents raised to market):

Market Rents: $1750, $1600 = $3350

NOI: $3350 - $1622.05= $1727.95 -> $20,735 per year

Expense:Income -> 48.4%

Cashflow: 3350 – (1622.05+1778.47) = -50.52 -> -25.26 per door.

Not too great for cashflow if the existing conditions remain unchanged. So, from these numbers it's clear that the PMI, low rents, and somewhat low (10%) down payment are reasons why the cashflow is currently negative. I did know there was a few things that needed to be overcome to get this property cashflowing when I bought it. Any feedback you all have would be great. Also, would you have bought this duplex for a buy and hold?

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