Beginner Investing in First Multi-Unit

[Mitch Pascarella]

Good morning all,

I am relatively new at real estate investing. For some time, I've been reading & watching BP podcasts regarding rentals. I feel that I've done most of the ground work, minus actually buying a property. My goal is to make my first investment at the beginning of 2020, but I am in need of some guidance from you all. Recently I had found a duplex near my house that is currently fully rented. I'd like to get some input on the numbers I worked together below: 

Purchase Price (assumed) - $61,000 

Down Payment - 20% 

• Monthly Total Rental - $1,200
• Mortgage - $227
• Tax - $110
• Ins. - $75
• Vacancy (7%) - $84
• Repairs (5%) - $60
• Cash Flow - $644

Cash on Cash: ~55% assuming additional cash for fees 

NOI - $787

Cap Rate - 15.4%

Thoughts? To my eye, it seems like a deal that I would benefit from, but I am concerned about an unaccounted calculation on my part. I'd like to add that I am from the Pittsburgh area. 

Thank you. 

[Jake Tovey]

I recommend running your numbers as conservatively as possible. So 1) I would bump the repairs up to 10% to account for cap ex and repairs/ maintenance as well, unless it is in great shape and recently renovated. Additionally, factor in property management in case you ever need to outsource that. I recommend 8-10% there although you may be able to find cheaper in your area. You will also have leasing fees with property management, which can be up to 100% of monthly rent when you experience tenant turnover. (Ex: you have one unit rented at $1000/ month and you expect new tenants every two years. You will want to set aside 8% each month for management fees, as well as $1000*50% annual turnover rate. In this case, $80/ month and $500/ year for leasing fees, totaling to $1460 per year for property management). This will help you if you ever find yourself in a position where you are unable to manage the property, but don't want to sell just yet (Poor market, underwater on your mortgage for whatever moving but want to hold onto it, you scale and no longer have time to self manage, etc). Those are rough numbers though and would help to talk to a property manager in your area.

Hope this helps!