Help Analyze A Deal For A Duplex Outside NYC

9 Replies

Hi BPers,

I am new to the forum and have an investment I would like help analyzing.

I have $150k and am deciding between buying and living in a multi family house or buying a single family house and investing the difference in mutual funds. I have not found a single family house but would look to spend around $350k with a 20% down payment.

The multi family house I have found and am considering purchasing is a duplex that is outlined below:

Asking Price: $500,000

Loan Details

  • Down payment: $100,000
  • Loan Amount: $400,000
  • Interest Rate: 4%
  • Loan Duration: 30 years

Rent Roll

  • Unit #1: $2,500 (owner occupied)
  • Unit #2: $2,000

Annual Expenses

  • Taxes: $17,500
  • Insurance: $2,500
  • Other: $12,000

Capital Expenses: $40,000

The duplex is located near NYC, one block from the train station so it is both convenient for me and should be no problem to rent.

My questions are listed below:

  • At what purchase price does this duplex make sense for a buy and hold strategy?
  • Does it make more sense to invest in the duplex or to buy a single family house and to invest the difference in mutual funds?

Thank you in advance for all of the expert help!

Justin

@Justin Pandolfino

I am assuming that you are going to live in the duplex and the incoming rent will be $2000

Per month using the numbers you posted. Your monthly mortgage payment would be $1910 per month and that's not including taxes and insurance. Total payment PITI WOULD BE $ 3576.32 and that's not including capEx and vacancy personally I wouldn't do it

Just my opinion 

Best of luck 

Steve 

@Justin Pandolfino

I am assuming that you are going to live in the duplex and the incoming rent will be $2000

Per month using the numbers you posted. Your monthly mortgage payment would be $1910 per month and that's not including taxes and insurance. Total payment PITI WOULD BE $ 3576.32 and that's not including capEx and vacancy personally I wouldn't do it

Just my opinion 

Best of luck 

Steve 

I think whatever @justin Pandolfino is paying for rent now should be considered part of his rental income even if he lives in his investment house.  So if his fair market rent is $2,000 we would consider  income  at either $4,000 or $4,200 so that's close to the 1% test.  1% would be an income of $5,000 a month.  So would this work?

The price of a house with this income probaby should be no more then $400,00 if it generates $4,000 a  month in rent (including a rent assigned to john) 

@Justin Pandolfino Your choices seem worlds apart with a SFH vs an investment property. While yes, these are both pieces of real estate, they can both be used to achieve very different financial objectives. This would cause me to ask you - what is your stated objective in real estate investing? Mutual funds are entirely different than 50% of a duplex. Not sure what you are trying to accomplish and so for that fact alone I would steer you towards buying a SFH.

If you have intentions of land lording and building portfolio, then based upon the numbers from a business perspective I agree with @Barbara G. that you want your purchase price to be very clost to the $400K mark.  

Other things to consider, being an on site landlord is much different than buying a single family residence. Would you outsource your property management? If so, is that factored in to your numbers? Are you prepared to screen tenants and if you had a vacancy would you be prepared to float the $400K note ($500K - $100K down pmnt) vs the $350K note on the SFH?

If you are looking for a quick go / no go on the duplex - my answer is in line with what others have said and is no.  That doesn't mean someone else won't scoop up that property at the higher price.

So with that said - If you are truly interested in building a portfolio, consider the following.  If your rent rolls are truly $4500 / month.  Is there anywhere that you can add value to that property to get them to $5000/month?  Can you take a look at deferred maintenance on the property that you could also negotiate the seller down to the $400K - 450K Range?  The idea here is to get your gross monthly rents into the 1% range.  But even then -- that is just one metric to evaluate the property.  

What type of neighborhood is it in?

What future development is coming that way?

Does the owner have enough equity for you to purchase it with seller financing?

Have you run the numbers through the BP calculator?

This is residential property -- what are the comps telling you?

What is the age of the property and it's infrastructure (roof, water heaters etc?)

Is the electric, gas and water separately metered?

As stated -- on the surface the property is over priced.  But if you dig deep and work on where you can get the price down and potentially raise rents -- consider that.  Also, consider living in the cheaper half.  Rent out the more expensive side.  Maximize your revenues. 

I hope that helps.

@Justin Pandolfino it also depends on location, the property might not cash flow so well (most stuff in NYC doesn't) but the appreciation could be great. 

The price that makes sense depends on what your looking for as an investor. You can pay down principle really fast with 2 payments or you can use it as a starter home and then after some time rent out the bottom floor and move into another project. If your going for cash flow don't do a single family House stick with the duplex.

The house currently generates $4500 per month ($2500 + $2000) in gross income so, by following the 1% rule $450,000 would be a fair purchase price, right?

I am planning to spend about $40,000 to upgrade both units.  I'm also going to offer the tenant a parking spot in an attached garage and access to the laundry room with the hopes that I could push my ask from $2000 to $2500.

After a few years building equity, I am planning to take a home equity loan and buy a single family home while still maintaining the duplex as an income property. With the upgrades, I'm hoping to push my ask from $2500 to $3000 for the unit, when I move out.

In other words, in a few years I am planning to earn $5500 in gross income per month or ($66,000 per year), which would be 1.1% of the purchase price.

My goal is to A) keep my personal housing costs low to B) generate cash flow when I move out and, as a lifelong renter, to C) begin to build equity.

I think the duplex accomplishes all three goals.

However, I also think that I could accomplish A and C by purchasing a single family house and could accomplish B by investing the difference in mutual funds.

Does that line of thinking make sense?