Analyze this Deal? Live In One Side, Rent The Other- Duplex

3 Replies

I purchased my first Duplex property about three months ago for $75k, using FHA 3.5% percent down.

The original plan was for the tenant's side to pay 100% of the mortgage / taxes / insurance / PMI, while I cover trash and water for both sides.

Upon closing and finalizing the loan, I realized the mortgage / taxes / insurance / PMI totaled out to $640 a month, which isn't bad in my opinion, but a little more than the $550 I was hoping for. The tenants I inherited are long term renters at $500 a month. I decided to keep rent the same since they take good care of the place, pay on time, and are long term.

My total payment is around $723 - MORTGAGE ($640) +TRASH ($33) + WATER ($50). 

Tenant pays $500, leaving me with around $223 a month. When I move out in the future I hope to rent my side out for $600, putting the total rent at $1100 a month, minus the total payment of $723 giving me around $377 cash flow.

Good or bad deal?

Bad. Your numbers don't account for repairs, maintenance, capex, vacancy, etc. That 223/month is going to evaporate in a hurry. If it's a good way to leave for relatively cheap, it's fine to hang on to without living entirely for free. In terms of cash flow on its own merits, you can do better in Ohio.

Thanks Aaron. The idea was to live cheaply, or close to free, while I save for other investment properties, then this one be a cash flow after I move out. What are you're suggestions to make it a better cash flow? Refinance, or rasie rents? Personally, I think their rent is a bit cheap at $500. Could easily be $550-$600. 

Start by running the numbers through a comprehensive rental analysis calculator (the one on BP is great), and get a picture of what your real cash flow picture looks like after you account for *all* expenses.

I don't know what market rent is in your area, but if you have one or both units at below market value, you should definitely find a way to increase them.

But, my gut says this property is still going to struggle to cash flow. If both units were $600 you have $1200 gross. Very generalized rule of thumb, expenses usually land around 50% of gross rent. So you're down to $600.  Mortgage is $640, so you're at -$40/m. On the upside, 3.5% down means you don't have much cash in the deal, so even minimal cash flow might be an okay return if you can keep expenses low enough.

For a duplex in the midwest, I'd personally want $200/door net cash flow. Just my personal ballpark. But I can guarantee there's better deals to be had out there.