Duplex Analysis

8 Replies

Hey everyone!

So I am about to pull the trigger on buying this property but the numbers that I am looking at put me on the fence of good deal / just an OK deal. The property is an up and down duplex. 2600 sq ft. 2 bed 1 bath in both units. The top unit is rented for $500 a month and we plan on living in the bottom unit. We are financing through FHA with 3.5%-5% down. Hypothetically, if both top and bottom units were being rented, we could get $1100 a month in rental income. We want to live in it for 5 years or so, refinance, move out, and rent both units out.

Here are the numbers:

Purchase price: 79,000

P&I: 350 per month

Taxes: 100 per month

Insurance: 30 per month

PMI: 50 per month

Management: 0 per month (I will manage)

Trash and Sewer: 50 per month

Separate gas and water lines

Vacancy: 8% (College town so it is easy to rent)

How would you rate this deal based off of these numbers? And looking at the property down the road when we refinance and rent out both units at $1100? Thank you all!

So here's a few questions.  What's the condition of the property.  You don't have capex in there anywhere.  Also what would be the "cost" of a pm.  Sure you're not paying now, but when you leave in 5 years you might want to be able to hire one.

The property is in fair condition. Brand new roof and siding, brand new boilers and water heaters. Brand new carpet as well. It is move-in ready since both units are currently rented but there are some minor updates I would like to make (paint, ceiling fans, fixtures). 

CapEx: 8%

Even after I move out, I will continue to manage the property. 

Thanks for the reply David!

Others will do a better job, but quick and dirty calculations below.  Maybe I missed something so please do get another opinion as I'm a newbie.

Purchase Price: 79000

Down (3.7%): 3000

Closing costs (5%): 3800 (This is a guess, anyone know if there is a rule of thumb for this?)

Minor Updates: 300?

Cash Outlay: 7100

Income: 6000 one unit, 13200 two units

30 year fixed 4% Mortgage on 76000: 4356 (363/month)

Expenses You Listed: 6960

Capex (8%): 6320

Living in it: You spend 11636 every year

Fully Rented: You're spending 4436 every year

Based on the numbers it looks like it would be an appreciation play and not a cash flow play.  This ignores stuff like being able to take deductions on your taxes.  You'll probably want to budget maintenance as well, but please take my advice with a grain of salt.

@David Kyo @Mitch Mitchell My two cents, it's always a good idea to include a budget for eventual property management in your analysis, even if you plan to do it yourself. If you don't use property management, use that budget as a slush fund for overages on CapEx or maintenance costs. One day you'll want this place to be managed for you and you won't want to have to try and cut costs or raise rents just to pay the property manager.

@Mitch Mitchell I am an idiot. I thought about it more and capex is based off income not purchase price. I was using purchase price. At 8% it should be 480 for live in and 1056 for fully rented. recalculating I believe the below are the actual numbers. Sorry about that. I am embarrassed. Capex is savings for big ticket items. Maintenance are just like little things that need fixing every year.

Living in it: You spend 5796 every year

Fully Rented: You're earning 828 every year

CoC is ~11%