Help analyzing my first MFH rental purchase

4 Replies

Hi All,

Long time listener and lurker, finally about to pull the trigger and make an offer on my first property (a duplex in a semi-rural town in the pacific northwest).

Numbers:

  • Mortgage: $570 (with 20% down, $28,000)
  • Insurance: $75
  • Taxes: $110
  • Maintenance budget:  $200
  • Property management: $165
  • Utilities (owner is paying currently): $185 -- note: I plan to change this at lease renewal
  • Total expenses: $1,305
  • Rental income (minus 5% vacancy estimate): $1,560
  • Cash flow: $1,560 - $1,305 = $255

Info:

Duplex (2x 2bed+1bath)

It had quite a few renovations done. The seller is a wholesaler who bought it from someone who could not afford the repairs.  All new appliances. Roof is less than 5 years old. Both units are occupied, and are supposedly good tenants that pay rent on time. No pets or smoking.

Concerns:

  • Age of property: 1893 -- should I be worried about this? Why would the age be a concern if everything about the property is in order?
  • The rents are quite a bit higher than surround 2bed+1bath units, however the units are in better condition.

Howdy @James Wierzba

There are a lot of issues you can run across with a property that old. It really depends on how previous owners maintained and updated it. Most definitely have the property inspected during due diligence. Many code issues can be hidden that you may not be aware of. You will have repair/maintenance needs because of the age. Things naturally break down. I noticed you did not include a CapEx reserve in your numbers. That could be up to another $165 per month. You need to have a good idea of the current condition and life expectancy of all the major components as well as the new appliances.

Make sure billing utilities to tenants is an accepted practice in that area.  That may be way the rents are higher for this property.

Hey @John Leavelle ,

Thanks for pointing out the potential issues with an older property. This is the biggest unknown variable for me.

Also, I intended the "maintenance budget" to be the capex budget (different term, same meaning). Luckily the house was pretty much completely renovated, which will reduce the risk.

Also, good point: I should check about how feasible it is for me to shift utility liability to tenants