Duplex Deal Analysis Requested

13 Replies

I've been lurking for a bit and learning a TON on BP, thank you all for this great community!

It's my first post and I hope I formatted everything correctly!

Any thoughts on this deal would be appreciated, I'm thinking of making an offer in the next few days.

Occupied and fully rented duplex. 2/1 per side. Lower income area but not a warzone, access to decent/good schools and minutes to major highways for commute/work.

Separate Utility/Water meters for each side, tenants pay all utilities in their own name.

Purchase Price: 81500
Rental Income: 1300 - Current. I think it could increase to 1400-1500 easily.
Vacancy: (117)

Gross: 1183

__

Mortgage: (350) 10% Down, 73395 @ 4.5%
Property Taxes: (83)
Insurance: (133)
Maintenance & Replacement: (166)
Property Manager: (118)
Admin/Legal: (15)

Expenses: (865)

__

Total Cash Flow: 308/Month

For my first post here, is this a good deal?

Thanks!

hey @Peter R.

welcome to BP! my first thought is looking at your 10% down, is this contingent on owner occupancy? in that case you would have to factor that into calculations. having said that, if you live there you can do the prop. management youreself and save a bit there. usually you only have to stay for a year depending on the terms. some are more lenient.

Hi Stephen,

No owner occupancy clause, I would not live in this property. I was actually going to offer each tenant their current rent for a full year if they sign a new lease with my property management company effective the date I assume ownership.

I figured that would be a good incentive to avoid anyone moving out due to worries about the change in ownership.

What company is lending to investors with a down payment of only 10%? Specifically for a buy and hold.

At 10% down you will not be able to obtain financing unless it's a HML.

Hey Peter,

Welcome to BP!

Regarding financing, for a convention loan, the minimum down payment is 25% for a 2-4 unit properties. It's 20% for single family homes.

The numbers look good except I think the property management may be low. Typically they will charge 8-10% of gross rents monthly, and 1/2 a month's rent when filling a vacancy. If you figure an average tenancy of 2 years - therefore an average of one vacancy to fill per year, then you'd have to add 4%. Another item to add is the cost of utilities and lawn care during vacancies.

Hope this helps. Good luck!

-Harry

Oops! Thank you all for the correction, somewhere in the back of my head I knew it was 25%, not sure why I was running the numbers at 10%.

Taking that into account, adding a buffer for utility and lawn care during vacancy and adjusting upwards for PM vacancy costs per Harry M's suggestion, here are the new numbers:

Purchase Price: 81500
Rental Income: 1300 - Current. I think it could increase to 1400-1500 easily.
Vacancy: (117)

Gross: 1183

__

Mortgage: (310) 25% Down, 61125 @ 4.5%
Property Taxes: (83)
Insurance: (133)
Maintenance & Replacement: (166)
Property Manager: (165)
Admin/Legal: (15)
Lawn & Utility: (30)

Expenses: (902)

__

Total Cash Flow: 281/Month

How is trash paid?

This looks like a good deal if trash isn't going to cost you anything.

You should be able to get your management bill down a bit as well. $165 is a lot. You probably won't spend more than 10%. Screen your own tenants, lots of good resources here on BP, and don't let the management company dock you a month's rent each time it turns over.

Trash/Solid Waste is a fixed fee and is a part of the utility bill paid by the tenant.

I do need to interview a few PM companies in the area, is a half month the norm or does it really vary by region?

Duplexes normally have all lawn care provided by the owner, do you know what the norm is in your area?

Originally posted by @Peter R. :

I do need to interview a few PM companies in the area, is a half month the norm or does it really vary by region?

There really isn't a "norm." 10% seems to be a standard allowance though I'd imagine almost everyone on here has a few contracts better than that. There is generally a fee of some kind for signing up new tenants. Most realtors charge one month of rent.

I pay my PM $100 fee forechecking person he signs up. Some times he makes $5/hour but usually he makes about $50/hour.

I would shot for 7% and a small fee. Be ready to pay more however.

@Harry M. I have seen the mention of 25% downpayment as a requirement on conventional loans before - is that a requirement if you are not going to owner occupy? If so, any idea what the requirement is for downpayment for owner occupied duplexes?

I am not the expert, but to my knowledge any multifamily 4 units and under that are owner occupied can use any typical financing including 3.5% FHA and 5% conventional options. I purchased an owner-occ duplex last year with 3.5% FHA

@Brian Oney

25% is the requirement for conventional loans for non-owner occupied 2-4 unit properties. For SFHs it is 20%. You can ask the seller to contribute up to 2% towards closing costs, so if you don't feel that it weakens your offer too much, then that softens it a smidge.

This is for mortgages 1-4, for 5-10 the minimums increase to 30/25% last time I checked.

Regarding owner occupied, what Jordan said above.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here