[Calc Review] Help me analyze this deal

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This is my first duplex I am working on buying for a buy and hold. I'd love to know what you guys think about it and just to get an extra set of eyes in case I am missing something with the numbers. Sellers would pay closing costs in this scenario. The key to this duplex for me is that it has separate water meters for each unit and tenants are paying all utilities which is not the case for a lot of the other multi-families of the same price range in the area. Another pro is that it is easily rented since the location of the property is very close to downtown Tucson and the University of Arizona. However, a few cons Id like to note in my opinion:

1) The block is kind of ugly. It's not the worst but its def going to appeal to more lower income families.

2) The comps for similar houses were around 160k as of the last one sold last year. I put 180k as an ARV because thats where Zillow has it, but I think its probably closer to 160k to 180k in my opinion. Part of me feels like id be overpaying, but this is final price after numerous counter offers. The cashflow though just seems so good to me.

3) Big down payment.

If there is anything else you guys would like to know, feel free to ask and I appreciate everyones help.

I think your reserve numbers are way too low.

  • Vacancy 3%? While it could be that this area has a low vacancy rate right now, but what if unemployment increases etc etc.. I would account for at least 5% vacancy. If you don't end up using it, its cash flow eventually.
  • Capex + repairs reserve of $145 per month seem to be too low. Your property was constructed in 1979, unless it has had a major rehab recently it will end up needing more money. Capex itself needs to be around $1500 per year for the duplex. CapEx and Reserves are absolute numbers rather than percentages.
  • Are you sure you can get a 4.3% interest  rate on a 30 year note for an investment property ? I think the rates for a small multifamily right now are around 5.5% (or I would at least use that number for calculations).

I personally do not think this is a good deal. With the right numbers, it would be hard to cash flow on this property with 20- 25% down.

I would not buy this. 

Try what I do instead: figure out your known & assumed expenses, then what you want out of the deal monthly as far as cashflow, and back into what you can offer.

So for instance, start with your rent (1450).

Minus your desired cashflow first. Don't budge on this!

then minus your taxes, insurance, vacancy, etc etc.... everything except your Principal and Interest (loan cost).

After you do all that subtraction, what you have left is what you have to service the loan (let's say $350)

You can use Excel's PV function to figure out what your offer looks like.

Using 5.5% interest rate (expressed as .055/12), over 30 years (360 months or "periods"), and with $350 month gives you an offer of 61,642.62.