I’m looking at a duplex that will be sold at auction, and trying to determine if it has potential as a buy-and-hold rental (and if so, what my max bid should be). I’m new to analyzing properties, so I’d appreciate any advice from the community.
If I purchase, I would pay cash. I realize I could make more by using debt, but I like the idea of paid-for rentals.
It’s a 1-story ranch built in 1984. One side of the duplex is 2BR / 2BA. The other is 2BR / 1BA.
Est. market value: $110-120k (Last sold for $100k in 2000).
Est. rent for Side A: $675/mo (with tenant paying utilities)
Est. rent for Side B: $600/mo (same)
$1275/mo gross rent X 12 = $15,300 annual
At a potential max bid of $91k, here's what I’m seeing:
$15,300 annual gross rent
- $2464 property tax (2% assessed value of $123k)
- $1000 insurance (estimate)
- $1530 maintenance (10% gross rent)
- $1530 CapEx (10% gross rent)
- $765 vacancy (5% gross rent)
- $1530 property management (10% gross rent. I plan to self-manage, but want to allow for future PM.)
$6,481 profit / year (or 7.12% cap rate)
Is that a decent return? What am I missing, doing wrong, and/or not considering?
I assume from your numbers that the tenants are paying for the utilities
But don't forget the small expenses: grounds keeping, (snow removal and lawn service )Pest Control, Advertising, (rental adds) Supplies, Legal Fees and Miscellaneous Expenses
I would normally use 10% for vacancies
the as you outlined looks very good
Best of luck
Thank you @Steve Smith Yes, those estimates would be with the tenants paying utilities.
I'll be sure to account for those additional expenses as well. I really appreciate your input. What do you think of the 7% cap rate? Is that reasonable, or would you be looking for something that returns better?
You might want to do a market analysis to figure out if the rents are under market. Also do your homework on the location. Drive by the property during the day and night.
Also I understand how you want to own this property free and clear but investing 91K to get about a 7% cash on cash roi might make you wanna think for a second. Cap rate is not the only roi you want to take into consideration.
It would be interesting to find out how many profitable rental properties 91k can buy in your are by using OPM (Other Peoples Money).
Just some thoughts.
Keep us updated on how it turns out.
@Kurt Brumfield -- Thanks. I definitely will.
I'm curious to know whether this duplex would meet @Ben Leybovich's $1000 rule — or whether it fails, due to the fact that you have 2 tenants, 3 toilets, etc.
Thanks again, everyone. The duplex ended up selling for $99.5k. I was prepared to go $91k. Appreciate the help running the numbers.