I’ve never posted on the BP forums as I’m just starting out as a potential investor. Below is a real world property for sale, this very moment. Properties with these numbers are common for my area. This specific property was built in 1990, so I’m assuming low Cap ex.
Duplex Price: $255,000
Taxes: $3,155 (before HOE)
Down payment: 3% ($7650)
total monthly payment: $1595
Tenant rent: $975
Roommate rent: $550
Total income: $1525
Total “income”= -$70/month
Do these numbers even begin to make sense? It seems this doesn’t even come close to passing the 1% test. This doesn’t even include the utilities for my side nor the income tax on the income from my tenant. Does house hacking at a loss make sense? I would get a roof over my head for $70/month (after other expenses). What kind of numbers would I need for this to be a valid investment in the long run?
@Allen Nida you need to do more studying. You are correct it doesn't meet the 1% rule. You do your analysis as if it is fully rented. $975*2= $1950/.01= $195000 max purchase price. Newer houses have Capex,(capital expenditures). All houses have roofs, heaters, flooring, kitchens, bathrooms, etc. Example roof 25 year lifespan cost $5000. $5000/25/12= $17 per month. Heater cost $3500 20 year lifespan. $3500/20/12= $15 per month. Flooring 1000 sf @ $5 sf 8 year life span. $5000/8/12=$52 an month. If it is a high cost of living area this could be a way to lower your own living costs.
@Allen Nida I'm assuming from "roommate rent" that you would plan to live there? If so, then based on the numbers you've run (which aren't really correct, more on that later), then you are "paying" $70/month to live in one side of the duplex. I'm going to assume this is way less than you'd be paying in rent or on a mortgage anywhere else, so you have to take that into account.
As for your numbers, first of all 1990 was 29 years ago, so yes there will be CapX. I'd suggest accounting for at least 10% of the total rent for CapX each month. Additionally, you didn't factor in Repairs (at least 5%), Vacancy (8%) or Management (10%, you should factor this in even if you plan to self-manage). You also calculated your numbers based on 1 unit rented, and 1 unit with a roommate, however when evaluating an investment property you should look at it as if both sides were fully rented out, i.e. total monthly rent = $1,950 ($975 x 2, assuming both sides can rent for the same).
So yes, based on the 1% rule this property is overpriced. Have you looked at rents in the area though? Is there the potential to raise rent? If so that might be a mitigating factor on the price, however the market seems to be pretty hot on multifamilies right now, so many of them are just plain overpriced. Investing is a numbers game, and you're probably going to have to run numbers on a ton of properties before you find one that actually makes sense from an investing prospective. Good luck!