I'm very excited to be a new member here.
I'm into the option period of a duplex in Garland, tx. The 2 units are platted separately so I have to get 2 separate loans and do 2 separate closings. The good thing about this is that I can sell one off if I want to later but for now I have to get 2 of everything.
Here is the deal just for one unit (the details are the same for both):
- Purchase price: $95,000
- No repairs needed (current owner is taking care of the big things found in the inspection)
- Current tenant pays $925/month
- Assuming 5% vacancy and CapEx
- Assuming 8% repairs
- Insurance is $95/month
- Taxes are $153/month
With a conventional loan of 25% down and a rate of 4.38% here is what the calculator gives me:
- NOI: $6,128.48
- Monthly Cash Flow: $154.97
- Total Cash Needed: $28,590
- COC ROI: 6.5%
- Pro Forma Cap: 6.14%
- Purchase Cap: 6.45%
- 50% rule monthly cash flow: $106.76
- Income-Expense Ratio (2% Rule): 0.93%
- Total Initial Equity: $23,750.00
- Gross Rent Multiplier: 8.56
- Debt Coverage Ratio: 1.44%
Is this a good deal?
Also, one of the units was remodeled with new floors and appliances but is currently vacant. Seller had a tenant that wanted to move in for $1049/month but they would be bringing a german shepard. I'm not a fan of those dogs. I've seen what they can do. Not something I want on my first rental property. So I asked them not to do that. But maybe its a good sign on what rents could be?
The other unit that is occupied could use some updating when the tenant leaves but I don't have to. And the current tenant owns the fridge so I will likely need to buy a new one.
Sorry for the spam. I posted to the wrong forum and I don't know how to move a post. I've reposted this in the deal analysis forum.
You haven't talked about the price of the duplex units compared to their peers/comparables. Is the purchase price a deal for the area? How about appreciation potential in the area? On the face of it, the return numbers themselves don't seem very compelling, but if you're picking up a lot of equity by buying below market, or you have some well-founded reason to believe there will be strong appreciation, then my opinion of the deal might improve.
Also, just for clarity, are you assuming 5% each for lost rent and capex, or 5% total? 5% total is definitely too low. 5% CapEx could be low too. That's $600/yr, which could be inadequate depending on how soon your roof, HVAC, or windows need to be replaced, or other major repair is needed down the road.
I own 4 duplexes but not in TX. Mine are all relatively low end inexpensive housing so they won't compare to a really nice high end duplex.
The rent vs purchase price is pretty decent although my experience has been that my duplexes always lose money in year 1 and start producing cash in year 2+. So be aware of this going in. For some reason things break a lot more in the first year I own them.
Are they 1 or 2 bedroom units? Are they at market price? A duplex generally gets a little lower rent than a freestanding house unless it is really nice.
Do all the utilities have separate meters for each tenant?
In my experience the duplexes have higher headaches, higher turnover and higher profits than my single family homes. If you are driving from Allen to Garland all the time, factor in how long it will take to get there because I have to run by my duplexes a lot. It got so bad that I finally handed all my duplexes off to a property manager and manage the single family houses myself because of the difference in workloads.
I am not scared of big dogs if your insurance will cover a German Shepard, but they will ruin the carpet and wood floors every time. I usually put ceramic or porcelain tile in the whole house and then big dogs are no problem. In fact it makes it harder for the tenants to leave as it is generally hard for them to find a place willing to rent to them. Also get a bigger deposit as the dog may ruin some doors by scratching. Check with your insurance company though as a lot of companies explicitly state they wont cover several dog breeds and German Shepherds are usually on the list.
Duplexes are great for cash flow after the first year, but go into them knowing they require more maintenance than single family.
Thanks for the input. There isn't any immediate equity. I would be speculating on anything in the future. Also the taxes are based on an appraisal of $120k so I would probably see my taxes go up after the next tax appraisal. They are 2 bed 2 bath units and they are selling at market price with backup offers. A bit too hot for my first go.
But I did get to spend my own money to buy the seller an inspection! :-)
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