Calculating Operating Expenses on Multi

5 Replies

Hi Folks, 

I'm looking to purchase my first 3/2 duplex for around $275k. I plan to occupy one of the sides for the first year and already have tenants for the other side who will pay $1300 per month (tenants will cover their own utilities). My side of the unit will be shared with two room mates who each pay $500 per month + share of utilities. Most of the big ticket CapEx items have been taken care of (roof, furnaces, AC units within last 5 years).

Question is, when calculating operating, CapX and debt servicing, am I looking at the numbers correctly? 

Here's what I've included for operating expenses: 

  • Property Taxes (2.4% of Property Value in Austin, TX)
  • Property Insurance (.5% of Property Value)
  • Property Management (10% of gross per unit rent after year 1) 
  • Utilities (less than $50/ month - split with room mates)
  • Repairs (10% of monthly rents- should this be a percentage of property value or a percentage of rent). 

Outside of these items I'm planning to use an FHA with 3.5% down. This will require PMI, which I'm guessing with come with a .85% rate (is this based on credit or fixed at same rate for everyone?).

Finally, I plan to keep $5k in savings for CapEX. I'll add $1200/ year to this and keep saving. Is this enough? How do you guys calculate / keep money on hand for this type of stuff? 

Thanks in advance for your feedback.

@Jeff D.

I'll stick to Cap Ex after this: are you sure you want to do this deal?  Quick looks says it violates the 1% after you move out.  Solid house hack, not sure how good it is going to look when you leave it.

Cap Ex

I put a minimum of $150/month into my Cap Ex fund, no matter the size, price or age of the home.  Over the next 20-25 years you are going to need to cover:

1. a new roof, unless you inherited something like slate or copper
2. 2 water heaters
3. brand new HVAC system
4. siding, unless it's vinyl
5. tenant damage

As you can imagine, these cost vary widely.  If you are handy and like working on projects, you don't need to save as  much.  If you plan on contracting everything out, the expenses will be much higher.

Repairs as a % of cost or rent don't make much sense. Assuming the same specs, a roof in the Austin area is going to cost you the same amount whether you are putting it on a 80k rehab 30 miles out or a 300k SFH just south of the river. You need to know how much that will cost you over the course of ownership.

A simple ranch roof DIY with a few buddies will cost you 2500 in shingles and $50 in beer :)  The copper roof we put on my frat house was $120k.  The DIY roof will need to be redone in 15 years.  The copper roof won't need to be touched for another 100.  The DIY roof would probably cost you $6k to have a contractor do it.  We didn't have the skill to install $90k worth of custom copper roofing :)

@Aaron Montague

Good to know on CapEx. I think min 150/ month put away is a good idea. I'll be starting with a small lump sum (about $5k and adding to it monthly). Plan is to buy/ hold/ sell after about 5 years.

Challenge with the 1% rule is that it's simply not attainable in the Austin market (or at least not based on what I've seen). That said however, rents are increasing at about 5-8% per year, so we're moving closer to this being a reality. I'm sure there are some deals out there requiring substantial rehab that make the mark, but I likely won't find/ have the patience for it on this go around.  

This would be easier to understand if you put a $ dollar amount.  When you say 2.4 its work to figure out how much it is in Dollar amount

 it violates the 1% rule.  That's not good.   I can not figure out what these percentages come to as listed in Dollars:  

Do your expenses come to more then $14,000 a year?  What does your mortgage Principal and interest come to?

  • Property Taxes (2.4% of Property Value in Austin, TX)
  • Property Insurance (.5% of Property Value)
  • Property Management (10% of gross per unit rent after year 1)
  • Utilities (less than $50/ month - split with room mates)
  • Repairs (10% of monthly rents- should this be a percentage of property value or a percentage of rent). 
  • ---------------------------------------------------------------------------------------------------
  • Why don't you put a $ amount next to all these expenses since I don't know what your "Property value "  is?    
  • Are the utilities broken out for each apartment including the water?
  • How much does  the mortgage. principal and interest come to every month?
  • How much is the PMI every month
Originally posted by @Barbara G. :

 it violates the 1% rule.  That's not good.   I can not figure out what these percentages come to as listed in Dollars:  

Do your expenses come to more then $14,000 a year?  What does your mortgage Principal and interest come to?

  • Property Taxes (2.4% of Property Value in Austin, TX)
  • Property Insurance (.5% of Property Value)
  • Property Management (10% of gross per unit rent after year 1)
  • Utilities (less than $50/ month - split with room mates)
  • Repairs (10% of monthly rents- should this be a percentage of property value or a percentage of rent). 
  • ---------------------------------------------------------------------------------------------------
  • Why don't you put a $ amount next to all these expenses since I don't know what your "Property value "  is?    
  • Are the utilities broken out for each apartment including the water?
  • How much does  the mortgage. principal and interest come to every month?
  • How much is the PMI every month

 I agree, from running the numbers given it does not seem to be a good deal to even house hack, and especially not as a stand alone rental. If bought for 275K and using given expenses, came out with a Purchase Cap Rate of around 4 percent and a negative cashflow.

Curious as to whether the OP ended up pursuing this deal or not?

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