Duplex Due Dilligence in TX

28 Replies

I am looking to buy a duplex in NE TX area in the next few months, due to work relocation. I would like to live almost rent free. I have done some of the preliminaries on this property, but it appears to me that I would still be in the red . I am not sure what I am doing wrong and would like to get some advice and also have a second set of eyes on the numbers. I am also using a VA Home Loan. Is there stuff that I am missing?

Deal Analysis

Duplex 4bed/2ba

Sqft 1792 each side

Current rent $1,142.00

Market Rent 1700-1900

Projected Collected Rent (both sides) $3,400.00 -3900

The Mortgage $1,613.00

Mortgage insurance (PMI or MIP) n/a

Property Taxes $371.42

Property Hazard Insurance n/a

Initial Investment $0.00 $ 50,000.00

General Maintenance Upkeep ?

Landscaping $30.00

Water 100

Repairs $170.00 or 5%

New Appliances n/a

Capital Expenditures $340.00 or 10%

City Taxes n/a

Property Management $170.00 or 5%

Vacancy Rate $272.00 or 8%

Total Expenditures $2,936.42

Difference $463.58

Updated over 3 years ago

DFW are not NE TX

asking $360000. Most rentals with very basic amenities are going for $1 /per sqft. The updated ones $1.10 - $1.26. I plan to negotiate the price down a bit , but I don't feel like I understand the current spreadsheets that I have at my disposal.

Have you tried using the deal analyzer tools on BP?  I'd go with the current rent for my numbers though.  If you think they're low that would just be a plus.  

I grew up in NE Texas and most of my family is still there. Those numbers just don't seem realistic to me. NE Texas is not what one would call a higher income area. The two most prosperous cities are Tyler and Longview, and the median income in those cities is in the $42-$43,000 range.  Texarkana is like $38,000. The smaller towns are in the mid-20's to mid-30's. Compare that to $61,000 in Houston and Dallas.

I just don't see a big demand for $1700-$1900 rentals in that part of the world. But I could be wrong.

Troy Luster, yes I have used the deal Analyzer tool, but ran out of my free trials. I put the numbers in some of the rental spreadsheets and the my cash flow appears to be about 450. Just not sure if there is something that I am forgetting.

Fred, Sorry, I should not have said NE, this place is between DFW. Some places in around there are renting for $1.10 -1.2 /per sqft or more. Are your thoughts still the same .

Cesar Castro. I plan to live in one of them and upgrade and lease out the other. No HOA's .

guys, my biggest concern in that I am missing something? I have tried to make sure that i run all my expense a bit high and am still conservative on the numbers

Originally posted by @Tony Karns :

asking $360000. Most rentals with very basic amenities are going for $1 /per sqft. The updated ones $1.10 - $1.26. I plan to negotiate the price down a bit , but I don't feel like I understand the current spreadsheets that I have at my disposal.

 I think you will have difficulty finding a duplex for $360K that will rent out at 1,900/side.

In mid 2016 we sold a duplex for $377.5K in a very trendy part of Dallas (Live Oak and Skillman, near Lowest Greenville), the Property taxes were $6,023/year, and the rents were a tad under $1,400/side.  And that was the market at the time. 

The duplex was built in the 20's had a lot of great period features, original hardwoods etc.  And was in as good of or better condition than the other similar duplex's that had come onto the market over the last 3-4 years (we physically looked at essentially all of them that came onto the market (maybe 15-20 or more) over the last 4-5 years.

Once you get near $2,000, unless you are in some sort of class AA high rise with pools and gyms etc, you will see people moving to SFH's.

I am not saying its impossible, just giving you my non scientific view having had a few rentals, with one being a duplex in Dallas of what I think you will find the market to be.

Home Owner insurance , I am still working on.  Because it's a duplex , I not sure how much more coverage I will need per month. Does anyone have an idea.

Originally posted by @Tony Karns :

Home Owner insurance , I am still working on.  Because it's a duplex , I not sure how much more coverage I will need per month. Does anyone have an idea.

 A little over $3000.  I spent $3,022 in 2015 for our duplex.

Originally posted by @Tony Karns :

Home Owner insurance , I am still working on.  Because it's a duplex , I not sure how much more coverage I will need per month. Does anyone have an idea.

 Home Owners insurance varies greatly based on age, upgrades to things like electrical system, and construction. Call an insurance broker and get a quote.

@Tony Karns I would be very suspicious of a duplex listed on the market at $360k where market rents would be 1% or more. Something doesn't seem right. How confident are you market rents are $1700-1900 per side? Why are they only getting $1142?

Honestly I have not seen a 2-4 unit property listed on the market that would actually cash flow in the past 2-3 years.

Originally posted by @Andrew Herrig :

@Tony Karns I would be very suspicious of a duplex listed on the market at $360k where market rents would be 1% or more. Something doesn't seem right. How confident are you market rents are $1700-1900 per side? Why are they only getting $1142?

Honestly I have not seen a 2-4 unit property listed on the market that would actually cash flow in the past 2-3 years.

 Andrew, is the 360k  too low? Not sure I understand the statement about the market rent being 1% or more. I ran the number though Rentometer this is my results:

Your results are based on 15 4-bedroom rentals in a 2.27 mile radius. 

Average

$2,791

Median $2,850

80% $2,250 - $3,500

60%$2,273 - $3,125 

While I am not able to answer that question about why the rents are so low. I can tell you that I have run the number in multiple scenarios and while I will have a negative cash flow during the time that I live there, my living expense will be almost free. Are there concerns with my numbers?

@Tony Karns Just make sure you do our due diligence. I'm pretty sure I know what duplex you're talking about - I live a couple miles from there. If you want to get in the $1700-1900 range you're probably going to need to put $15-30k of updates into it.

Also make sure you check if it's in a flood zone - parts of that area are. Not a dealbreaker, but you will need to factor in flood insurance if so.

Other than property taxes, I think your expenses look good. Dallas County has been relentless in raising property taxes the last few years. As soon as it sells, they will raise the tax value to at or near the sales price. Even with the homestead exemption, taxes are going to go from $370 per month to $600 or more.

If you need any other help send me a PM. My wife is a realtor and we live in and know that area very well (again assuming I know which duplex you're talking about).

I would use caution about the rental sites estimate for rents.  I think the site you referenced only uses data from the places that market with them, which are higher end complexes.  Look at Craigslist ads and Zillow ads in the area for comparable buildings and unit makeup / age.  More importantly, talk to the property management company you plan to work with about what you can realistically expect.

I assume you have a management company that quoted you 5%.  They can help you with rent expectations since they are advertising rentals in the market regularly.

Can an insurance broker.  You want to at least coverage that will pay out the loan if there was a total loss.
I would also ask about landlord's insurance that covers loss of rents and offers liability protection.  A local insurance broker can offer you what works well for your area.

Ryan,  I have reached out to my realtor  and other members on BP in order to research the numbers better. I will be self managing as I will be living in the other unit, but I will attempt to reach out to the owner and see if they are willing to share that information. I have checked Zillow ads and the number are very close. I plan on reaching out to an insurance broker tomorrow.

Originally posted by @Andrew Herrig :

@Tony Karns I would be very suspicious of a duplex listed on the market at $360k where market rents would be 1% or more. Something doesn't seem right. How confident are you market rents are $1700-1900 per side? Why are they only getting $1142?

Honestly I have not seen a 2-4 unit property listed on the market that would actually cash flow in the past 2-3 years.

Tony, I will echo Andrew's word, I have owned a duplex not too far from there, and looked at just about every duplex (and a ton of SFH's) that have been listed in that part of Dallas.

Any that have come on the market that are even close to breaking even are bought within 24-48 hours.  We sold the one we had because the price of the property had gone up so much and left the rents behind.

Andrew and I are both asking you if you can really get 1,800-1,900.  My wife and I were getting around $1,400 for our duplex.  The fact the current owner is around $1,100-$1,200 suggests that 1,800-1,900 is optimistic.

I think what is happening is you are listening to an automated program and the program is pulling rental comps from near White Rock Lake on some "A" class properties.  As Andrew mentioned, he lives in the area, and has been a wholesaler/investor focusing on that area for quite some time. It even sounds as though he has possibly looked at the property in question.  

I have both been an investor looking at that part of Dallas as well,  Andrew's valuations and mine seem to be about the same, I don't think we are far off.

Having said all of that, it sounds like you are interested in house hacking. I have said for a while, (and that is what my wife and I did), in a house you plan on living in, house hacking can work if you view it as if you would buying a SFH. Ie that you can afford to pay the mortgage as if no one else is going to live there. THEN if you rent out the other half, everything you get is a bonus.

Its a slightly different mindset than running pure numbers to see if they will work as a stand alone rental.  The end result is you can pay more.

Send me a note if I can help if you go forward.

@Tony Karns Just to clarify, even if this probably wouldn't cash flow as a stand alone rental, I agree with @Bart H. that it would make a great house hack. 

You might not be able to get rents up to $1900, but $1600-1700 is probably doable. The problem with nailing down rents is that most of the duplexes in the area are 2 bedrooms renting at $1200-1300 per month. There are no 4 bedroom rent comps except for much nicer single family houses in adjacent neighborhoods.

But the duplex is in a good elementary school, and with a little cosmetic rehab you can certainly raise the rent substantially to cover most of your mortgage.  

Originally posted by @Andrew Herrig :

@Tony Karns Just to clarify, even if this probably wouldn't cash flow as a stand alone rental, I agree with @Bart H. that it would make a great house hack. 

You might not be able to get rents up to $1900, but $1600-1700 is probably doable. The problem with nailing down rents is that most of the duplexes in the area are 2 bedrooms renting at $1200-1300 per month. There are no 4 bedroom rent comps except for much nicer single family houses in adjacent neighborhoods.

But the duplex is in a good elementary school, and with a little cosmetic rehab you can certainly raise the rent substantially to cover most of your mortgage.  

Right on about the number of bedrooms and rent comps. A 3/4BR is more likely to be rented by a family and being in a good school area will/should appeal to families. I would suggest you look at what SFR of the same size rent for in that area. There may be a "slight" discount going to a duplex, depending on how it and the yard are set up, but shouldn't be much. (as a mother and former realtor and former property owner and tenant, and given my frugal nature, All those things would factor into renting a duplex)

You left the mortgage insurance blank, but you say are using a VA loan. If you are putting less than 20% down, I am certain you will be required to carry mortgage insurance. It is not a negligible expense, either. It will be a few hundred bucks a month.

Originally posted by @Elizabeth A Johnson :

You left the mortgage insurance blank, but you say are using a VA loan. If you are putting less than 20% down, I am certain you will be required to carry mortgage insurance. It is not a negligible expense, either. It will be a few hundred bucks a month.

Elizabeth, with a VA loan the is no PMI. The VA guarantees the loan. One of the few awesome benefits from the services