Revisiting the duplex deal in Dallas, TX
Hi everyone,
I recently posted about a deal that my friend was considering in Dallas, TX; that post is below and labeled "original post". We've looked at the numbers a little more closely and changed up the strategy a bit and would like to know what you all think.
Here's the revised deal:
Purchase Price: $340,000
Down payment: $68,000
Closing Costs: 5% $13,600
Square footage: ~2500
Bed/bath per unit: 3/2 for both
Current rent: $1375 and $1300 but we would raise them both to $1500 each over 2 years
Monthly taxes and insurance: $525
Estimated monthly mortgage payments on $272,000 30 year loan (80% LTV) with a 4% interest rate (which he is confident about): $1300
Estimated monthly maintenance costs: 5% of gross rents ($150)
Capex: 3% of GR ($90)
Vacancy cost: 5% of GR ($150)
Management fee: 2% ($60) (he will manage it himself for 5-7 years when he sells it)
Garbage/heat: $0
lawn care: $100
Misc expenses: $75
Total monthly expenses: $2450
Monthly cash flow before rent raise: $225
Cash on Cash return before rent raise: 3.3%
Cash flow after rent raise: $550
Cash on Cash return after rent raise: 8.1%
We've only alotted 3% for capex because he plans on selling it now in 5-7 years. I got him to account for vacancy, lawn care and maintenance as well. Let me know what you guys think. I know rationalizing away expenses isn't the way to get a good deal but these seem reasonable to us. Let me know if this is a realistic projection or if we're making bad assumptions.
Also thank you to everyone who replied to the original post, there was some very helpful info in there.
Andrew
=============ORIGINAL POST=============
I have a friend who is considering purchasing a duplex in Dallas TX. He refuses to budget for vacancy and capex. I'm trying to convince him to be more conservative but am having a hard time since I really don't have much experience, so I decided to turn to the collective wisdom of the nice people of biggerpockets. In his defense, this is my first analysis, so please let me know if I miss anything.
Here's the deal as he wants to do the analysis, any input is appreciated:
Listed Price: $360,000
Square footage: ~2500
Bed/bath per unit: 3/2 for both
Current rent: $1375 and $1300
Monthly taxes and insurance: $525
Estimated monthly mortgage payments on $288,000 30 year loan (80% LTV): $1500
Estimated monthly maintenance costs: 5% of gross rents ($134)
Capex: 0
Vacancy rate: 0%
Garbage/heat/lawn care: 0 (not sure if tenants pay these. Is it realistic to push these off on tenants? If not what are average costs for this area?)
Total monthly expenses: $2159
Monthly cash flow: $516
Cash on Cash: 8.6%
We don't have actuals on expenses yet, so for now we're trying to hammer out a good estimate.
I believe tenants pay electric/water. They are long term tenants and he would plan to keep them and maybe increase rents slowly over the next couple of years. Let's just assume he pays full price. I'm concerned with the deal because the expenses he assumes are low especially since he plans on keeping the property for 20+ years. Additionally the property yields negative cash flow with the 50% rule.
Does anyone have any thoughts on this?