Recipe for Disaster or Road to Riches

3 Replies

I can build brand new 3 bedroom, 2 bath duplex for $110,000 per side ($220,000 per building).

Conservative appraisal $140,000 minimum, real world would be $150,000.

Rent $1300/per side

Taxes $250/month per side(non owner occupied rate)

Insurance $50/month per side

Vacancy $130/month per side

P/I 5%, $110,000 Loan, 30 year Mortgage - $590.51 per side

Maintenance/Cap EX(5%) - $65 per side (after 5 years would have $3900 saved up per side)

HOA/POA - $0 N/A

Total = $1085.51 per side

Monthly income = $214.49 per side or $429 per duplex per month at an initial purchase cost of approx $0(zero - see below)

I know I don't have management, maintenance and cap ex are small, but there is a 5 year warranty on most things like furnace,etc, and 10 years on structural. When I build it is high quality. Management will be handled by me, screen the heck out of renters.

My plan, build with cash, refinance 80% max, get all my money back out and have virtually ZERO into the project. $30,000 to $40,000 equity per side. Keep for minimum 5 years. At the 5 year point, should see rent increases, cap ex and maintenance should still be insignificant but could be accounted for if an investor bought.  Either sell each unit individually or I personally live in one side, live there 2 years, sell tax free. Move to the next one, repeat.  I am considering doing 3 - 6 buildings (6 - 12 units).

Any input is greatly appreciated.

Easy answer. Do it...exactly as you have laid it out. Only one thing to add. If you are getting a cash out refi (it looks like yes...between $2k-10k), that "Cash Out" becomes your cash reserve for the CAPEX, maintenance, that $65/month you're taking out in your analysis can either be pocketed, or added to the lump sum from the refi.

Joe, I thought that too if it did appraise at 150k could make a little cash on refi.

Originally posted by @Steve Smith :

Joe, I thought that too if it did appraise at 150k could make a little cash on refi.

 That's the way I do it.

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