First Duplex Analysis

14 Replies

Hey all, just looking for a little input/number check on a potential first deal that myself and another person are looking at going 1/2 on. 

Duplex: 2/1 on both sides (900sq ft a piece), built in 1991 right on the outskirts of a moderately growing area in Missouri. Property is in overall great shape with a brand new roof, appliances, floors, showers. HVAC will need to be replaced in ~5 years and got quoted 10K (total forboth sides.) Will only need (before inspection results) about $1,500 to "refresh"  the property. 

Target purchase price: 99K

20% down(10% each)

Seller is full 6% closing

20 year note @4.75%: $511/MO

Insurance/Taxes: $176/Mo

Rent: $600/side (could easily rent for $625/$650 looking at comps, and will be looking to bump to $625)





*I know it's just shy of the $100/door but we wanted to keep it at a 20 vs 30 year. 

*Zero management cost as we are local. 

*We already have funds set aside for the HVAC just in case. 

*One side is already rented with a longterm tenant (mom&child) and I do not see a problem with finding someone for the other side as rentals in this middle price range are highly sought after. 

Any input/advise would be appreciated! Thanks all!

I feel like it's a little light on cash flow and return on investment. If you could bump those rents up $50 a unit that would be a much better deal. Why choose a 20 over a 30 year note? Tenants are paying so why not maximize cash flow?

@Jason D. We have actually been throwing the idea up between a 20/30 and that is still up in the air. I know that would increase the cash flow to an even more appealing amount, but the 20 year pay off is appealing as well. 

The $50 increase per unit would be easily feasible in the near future once minor cosmetic upgrades are completed as well. 

I appreciate the response and advise!

It seems to be a pretty tight deal at only $90/door cash flow. Even though you plan on self managing right now there may be a time you no longer want to manage the property and when you factor in the 10% for property management your cash flow is gone. I would keep looking for a better deal personally the spread on this one seems too thin!

From running the numbers you gave, it seems it would be a decent deal if you could just do a 30 year. If you did a 30 year and you were able to raise the rent to $625/month, you would be looking at $317/month cash flow. But I don't know your market at all so not sure what a good deal looks like there.

I'm with Merv on this one. Taking the 30 year gives you the option to accelerate debt reduction if desired while also giving you breathing room for the unexpected.

For sure it’s not the deal of a lifetime but you have to start somewhere. I like that you said it’s in somewhat of a growing area. Should be potential to raise rents. Do the 30 year. You can always pay a little extra every month.

@Ron Fletcher @Bob Langworthy @Merv Screeton @Samuel Lynch @Brian Garrett

Thank you all for the inputs/advise as well! I am pursuing the 30 year financing and have actually found a few banks that are willing to do it (and a lot that will only do 20's).

I got quoted a 30yr @5.25% 5/1 or possibly a 5/5 with a potential cap with 20% down on a 99K purchase. 

I've continued to run the numbers and I completely agree with you all on the flexibility of being able to pay the loan down faster, benefit from the increased cashflow, or even set aside for the upcoming HVAC replacement.

Again, I really appreciate all the inputs and advise on the matter! I'll keep you all updated.

@Samuel Lynch Yes we actually had the property under contract but during the inspection found some foundation issues...nothing show stopping, but they needed to be addressed. Once that was discovered we went back into negotiond and unfortantly could not come to an agreement. 

Good news though, am going to look at a 4plex on Thursday and will resubmit the same offer on the duplex if it's still on the market in 2 months!

@Ryan Landon

That’s great you went through the process and found that issue. Probably a good learning experience. Sorry it didn’t work out but at least you’re right back at it. That’s awesome. Thanks for the update.

@Ryan Landon a couple of expenses I didn’t see in your analysis: lawn care & maintenance and water /sewer.  Who takes care of these expenses, landlord or tenant? 

The main reason I bring up sewer is to determine if it’s on septic. If so, septic tanks only last 30-40 yrs and if originally installed in 1991, could be nearing time to replace. 

Blog article I wrote on Purchasing Our First Duplex

I also have a super easy income/expense spreadsheet for 2-4 units on my site. If you ever want an additional set of eyes on an opportunity, happy to look at it, just DM me. 

@Jay Helms good discussion points! No this property is not on septic no worries there. As far as lawn Mx, it is a smaller lawn, so myself/my partner will be taking care of that to keep expenses down. 

Thanks for recommending the article, putting up the questions, and offering to look at any future deals...much appreciated!!

Seems like a small spread. Do the 30 yr term since tenants are practically paying down the mortgage. If the property will be going up in value in the years to come this deal wouldn't be a bad idea. If you could get away with a quick refresh to the property for $1500 and then increase rents to $675 that would be ideal.