I need help running numbers on this duplex.

[Jon Rylander]

Hey BP, Need a little help here

Let me know what you think of my numbers.  Am i leaving anything out and would you guys go for this deal or turn it down and why?

I have a duplex under contract in East St. Paul MN that I would like to rent to section 8.  Section 8 will pay $970 a month for a 2 bedroom unit.  One of the units is a 3 bed but to be safe ill just keep it at the 2 bed price

Here are the #'s

Purchase price = $85,000 Down payment (25%) = $21,250 Rehab = $25,000 Closing = 3000 ARV= 115,000 - 125,000

out of pocket expenses = $49,250

Total investment = $113,000

Gross monthly income = $1,940

Monthly expenses:  Utilities = 400   Vacancy (10%) = 194   Insurance = 100   Property tax = 167   Maintenance = 200  Maintenance reserves = 200  Management (myself) = 100   Principle & interest = 328

Total monthly expenses = $1,689

Monthly Cashflow = 1940 - 1689 = $251

Annual gross income = $23,280   Annual expenses = $20,268   Annual cashflow = $3,012

Cash on cash return = 3012 divided by 49250 = 0.061 = 6.1%

ROI = 3012 divided by 113,000 = 0.027 = 2.7%

Using the 50% rule this works 1940 / 2 = $970 - P&I $328 = $642

Using the 2% rule this works 1940 / 85,000 = 2.3 % or would i use 1940 / 113,000 which almost meets the 2% rule at 1.7 %

Thanks Guys!

[Dan B.]

The main problem I see is that you're getting no equity spread for taking on the rehab, only risk. Why not just buy a place next door that doesn't need the rehab for $113k and rent it out? Less risk, same reward.