Is this duplex cash flow good enough for a first timer?

Question

I'm new to multi-family property investing and wanted the forums thoughts on whether this property had good enough cash flow.  This is a duplex, each unit is ~1000sq.ft.  It's a nice location and in good condition.  Thanks for your thoughts!  Jeff

Listing Price:$159,000

INCOME

Rental Income$1,748 $.85/sqft.

Garage$0

Laundry$0

Storage$0

Misc$0

Total Monthly Income$1,748

EXPENSES

Taxes, Property$350

Insurance$100

Utilities

Electric$0

Water$100

Sewer$50

Gas$0

Garbage$0

HOA$0

Lawn/Snow$0

Vacancy$100

Repairs$100

"Capital

Expenditures (i.e. new roof)"$150

Property Mgr $0

Mortgage $705

Total Monthly Expenses $1,655

CASH FLOW

Income $1,748

Expenses ($1,655)

Total Monthly Cashflow $93

CASH-ON-CASH ROI

Down Payment $15,900 10%

Closing Costs $5,000

Rehab Budget$5,000

Misc, Other  $0

Total Investment $25,900

Annual Cashflow $1,111

Cash to Start: $25,900

Cash-on-Cash ROI 4.29%

Anthony Wick · Answer

@Jeff Benson  Hold on now. Let's take a closer look at those numbers.

Where are you getting all your numbers from? You're at a starting point of 1.1%, so let's dig deeper.

I'm assuming your property taxes are from a county assessors website? $4,200 for a $159k property though? Yikes, that is crazy high!

Insurance also seems high. $1,200 for a $159k property? I have a $270k duplex and it's $960 a year.

And where did you get your water and sewage expenses from? You can call utility company and get the yearly average.

Is vacancy really 5.7% in  your area? I figure 3%, but it's a growing community around here. Not much vacancies for duplexes. Hardly any at all.

How old are the HVAC and roof? You're probably good on figuring that $150 a month for capex. Maintenance might be pretty good too.

So, maybe the numbers don't work. I don't know. But just make sure that you're analyzing real numbers on things you can, like utilities, P&I, Taxes, Insurance. Also, if you're rehabbing a bit, can the rents be raised when done? And, like somebody brought up, where are you getting the 10% down payment figure from?

If you haven't tried the BP calculators yet, you get 5 free before you need to buy that Pro account, which gets you unlimited calculators.

Good luck.

Jeff Benson · Answer

Thanks for the feedback, everyone!  I don't see the numbers working on this property.

Jim Cummings · Answer

@Jeff Benson. If this is not a Live-In situation, you'll probably need 25% Down Payment as opposed to 10% as you show in your numbers.

Kent Hall · Answer

Hey @Jeff Benson,

To caveat from the beginning, your goals and objectives should drive your decisions.

With that out of the way, I think that <$100 total cash flow for a duplex is a little bit to slim of a margin. That doesn't give much wiggle room for unexpected expenses (or expenses that are more than your estimates).

Now, the property isn't all that expensive, and if you are prepared to break even, or take a small loss, in order to learn from the experience, seems like this would be a relatively safe way to do it. That is if the $26k you are putting in from the beginning doesn't totally strap you for cash.

Also, and this is a personal thing which may not be true for you, I always want the numbers to cash flow positive after including property management in the calculations.

Good luck.

Peter Fennig · Answer

No, that's less than $50 a door in cash flow per month

Frank Chin · Answer

@Jeff Benson

I don't see allowances for vacancies. I been doing rentals for over 35 years and my experience had been tenants generally last two to three years before they move on. I had some that stayed over ten years, but I charged below market rents as I don't raise them and market rents escalated rapidly where I am, in NY. Generally vacancies take 30 days to fill, some take up to 60 days in slow periods lake Dec and Jan. Besides lost rent, you got to re-paint, re-carpet sometimes, and major fix-up if the tenant is a slob. If you try to keep the deposits, be ready to go to court. I watch court cases on TV and many landlord thinks the tenant has to vacate the place and leave it in move in condition, and if not, the landlord keeps the deposit. The landlord lose in most cases.

During the last vacancy, my wife and I were both sick, the wife was hospitalized for pesticide poisoning doing work at the rental, so we lost six months rent @ $2,500/month. Place needed major work so even if I got a PM, we tried, but cannot move on it.

Just want to mention what could happen. Our saving grace is we own it free and clear. Your numbers don't reflect that.