Duplex Analysis

4 Replies

Long time reader but it is time to get the feet wet. 

Asking $95500 for a duplex that was gutted and rehabbed about three years ago. Everything new except the roof.

Unit 1: 1 Bedroom/1 Bath, rent is a combination of section 8 and tenant for a total of $700.00.

Unit 2: 1 Bedroom/1.5 Bath, rent is a combination of section 8 and tenant for a total of $740.00.

Based on the 50% rule, 20% down, and a 5% mortgage rate, the COC is 14.87% and $155.00 profit per door. Offering $85000 plus closing will have the COC at 25% and $177.00 profit per door.

Also, unit 2 has solar panels and the tenant pays the owner $60.00 extra per month. The contract with the solar panel company, signed last year by the owner, is for monthly payments of $50.00 for 10 years. Not sure how it transfers. In addition, there may be room on the property to add a separate structure for a one bedroom/1 bath unit.

How does this deal look and has anyone had experience with solar panels?

I can comment on the solar panels on a rental. We own our panels outright, so it's a little different than your situation.  The electricity is in our name, the solar covers about half of the electric use. We include electricity in the rent, about a $50 per month allowance.  When they got a space heater this super cold winter, they went above $50, and we pointed that out (but didn't charge them extra for the first 'violation'). I think in the next lease period we're going to have them pay actual electric (to us).

Is the electric utility included in the $740 rent you listed for unit2?? 

not exactly a parallel situation, but I hope this helps you.

Thanks Tanya. I also did a search on here for solar and found some helpful information. The owner has a contract that calls for him to pay $60.00 per month for 10 years to the solar company to rent the panels. The tenant is paying the owner an extra $60.00 per month. The tenant pays his own utilities. So I am a little concerned about what would happen when this tenant moves out. Also, if the roof needs replacement, who would be responsible for the cost to remove the panels and then reinstall?

@Glenn W. Check your scenario 1 COC. Doing a "quick" iphone calculator analysis, you're stating $155 per door in the first scenario in which I'm assuming would be you paying full asking price of $95500. Which would make your net income per year $155 x 2 units x 12 months = $3720. I'm assuming a total cash outlay of 20% down of $95500 which is $19100 (I'm not taking into account any other out of pocket costs at purchase such as closing, fees, vacancy, repairs etc). Scenario #2 COC appears to be correct.

Scenario #1

$3720 / $19100= 19.5%

Scenario #2

$4248 / $17100= 25% 

That being said as I mentioned above, don't forget to add in any other out of pocket soft costs/repairs at purchase. This will have a direct effect on your COC per year.

Regarding the roof- good question, I don't know the answer. I'd contact the solar company before making any offer.  Installers in general recommend their install on a new roof.

We got our panels when we put on a new roof. 

When the tenant moves out, why not raise the rent for the next tenant to $800 without a separate solar surcharge?  I guess I don't understand your question.

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