Duplex Analysis (House Hack/Investment)

7 Replies

First, I want to thank you all for your time and assistance! I've just started analyzing deals within my market and would love to get some extra eyes to check if I'm on the right track. The goal is to use my VA loan for the mortgage. Thank you again!

Property Info

Purchase Price: $160,000. The property is actually listed for $189,900 but after looking at comps, most properties are selling for around $140,000 to $150,000. Would I be able to negotiate even lower?

Property Type: Duplex

Year Built: 1972

Lot Size: 1590 sq ft

Unit Size: 1590 / 2 = 795 sq ft

Rehab Costs: $20,000 + 15% (overrun cost) = $23,000. This figure is a *very* rough estimate due to this being my first investment/rehab. Essentially, one side of the duplex has been completely renovated but listing didn't speculate on the other side so I'm assuming I'll need to redo all the cosmetic work.

After Repair Value: $200,000. This is also a rough/conservative estimate. Seeing as how the purchase price is 160,000 plus another 20,000, I'll just figure the appraisal would at least be $200,000 (I think)

Property Tax: $2,143/yr

Insurance: $798/yr

Property Management: 0$ (self manage)

Maintenance: 10%

CapEx: 10%. Listing mentioned the renovated unit got a new HVAC but i figured I'd be conservative on this as well.

Utilities: $0. Tenants are paying utilities.

Purchase cost: 3%

Vacancy: 5%

Total Operating Expenses: $405

House Hack Analysis

Gross Rent: 850 (/mo)

NOI: $355/unit (in this case only 1 unit since I would be living on the other)

Cash flow: -$326. So this means that I'd be paying approx. $326 every month for this property? It's still a lot lower than my current rent that I'm paying but I probably could find a better deal (I'd still be stoked to only pay $326 a month for my living expenses down from around $1,600).

ROI: 18%

CoC: -14.1%

Summary: Is the goal to essentially break even while house hacking? If so, this might not be a good deal.

Fully Rented Analysis

Gross Rent: $1,700 (/mo)

NOI: $515/unit or $1,030 total monthly

Cash flow: $250 (post tax)

ROI: 45.5%

CoC: 13.4%

Summary: Fully rented, this looks really good!

Hey Nick, 

Im an agent in Massachusetts but used to be an agent in Northern Virginia (Crystal City, Arlington). For house hacks I look at what it will be when fully rented because eventually your goal is to move out and get it rented.

This seems like a good deal. Hopefully its just light rehab of your first deal and you wont have to pump 20k into it. 

If this one doesn't end up working out I have seen a lot of house hackers target turnkey duplex with a full finished basement. That way you could live in the basement (if you care) and rent out both units day one. Then take the 20k you were going to use towards rehab on your next property utilizing the 0% down on the VA loan.

Good luck out there 

- Mike 

@Nick Aquiningoc , first question off the bat is if comps are $140-150k, why would you pay $160k? More importantly, why would you expect an ARV of $200k? $20k isn't a ton of work, and it doesn't matter how much you put in if the comps are $150k. Your assumption of $160+20 = $200k is not how residential valuations work.

As far as the analysis:

  • 15% combined for Repairs and CapEx is probably fine.
  • Vacancy may be closer to 8%, but this is very local.
  • Always underwrite for management, even if you will self-manage at first.
  • What about water/sewer, lawn care, and professional/admin costs?
  • What are your expected mortgage terms?

By my math, if you're $180k all in and finance with 20% down, you might cash flow $100/month after you move out.

@Michael Belmore Thank you for your input Michael! I didn't know if I should put the analysis of the house hack duration or the fully rented analysis so I just put both. Lol. Thank you for clarifying that up for me! I thought it looked like a good deal as well! The turnkey strategy sounds very appealing, especially since there won't be that much work at the beginning. Thank you again!

@Jaysen Medhurst Thank you for your input Jaysen! Your feedback was well received. I was also confused as to why the original listing price itself was at $189,900 when the comps were at $140,000 - $150,000. The property description mentioned one of the units being completely renovated and the pictures of those renovations looked very well done (new stainless steel appliances, cabinets, flooring, as well as a new HVAC), although nothing could be said for the other unit. There was an outlier at $240,000 but it wasn't a true comp since it a) Wasn't a multi-family but a SFH and b) Was a 3bd/2ba.

My offer of $160,000 came from my assumption from which I can negotiate the original price down from $189,900. Is the seller just placing this property at much higher market value even with half the duplex fully renovated?

For the ARV, I really just threw arbitrary numbers for the rehab budget (assuming 20k could remodel the kitchen, flooring, carpet, and paint for the 1 unit). I also assumed that 20k worth of work would at least equate to 20k of value added, with a little on top, but now I know that's not the case. I'll have to research more into residential valuations as you mentioned.

Nick, I'm also new to real estate investing so please take my opinion with a grain of salt. I try to stay away from getting an ARV estimate, I would get in touch with a realtor that you trust to get that. As far as comps, I've learned that there's a thousand different reasons a home is valued at what it is. I've found it nearly impossible to get this evaluation myself. The idea is to create less work , not create more. So again, talk to a realtor.

I know it seems counter intuitive to ask one but I’ve met plenty of great ones who have helped understand the logistics better than I could ever imagine. I’m also in the process of becoming a realtor myself. I’m still learning just like you, but once everything starts to click, it’s like a drug lol. 

@Jake Davis Hey Jake! Thank you for your input! I'm currently in the process of interviewing realtors right now. Seeing as how all of them grew up in the area I'm looking to invest and hold a wealth of information on the area here, I'm finding it difficult to decide between them.

I'm using the deal analyzer from Dealcheck to run my numbers and saw they had an ARV field. Thought it best to throw in an ARV figure arbitrarily. Now knowing, it's probably best to leave that out for now until I get accurate ARV numbers like you mentioned. Thank you again!