First Duplex Purchase

[Jacob Breazile]

Happy Wednesday everyone! I've just finished going through the prequalification process and am getting ready to purchase my first MFH. I have spent a lot of time reading through guides like Brandon Turner's How to Estimate Future CapEx Expenses on a Rental Property and How to Buy a Small MultiFamily Property: A Step by Step Case Study, which have been incredibly helpful.

I have found a property that I'm very interested in, but I would like a second opinion before moving forward. I live in the Salem, OR area where the market has been really competitive. I know many investors want to see the 2% rule, but in this area, I'm not sure that is reasonable unless my first property was one in desperate need of rehab. The following home is in an awesome location, built in 2015, and is not in need of any repair (it's basically new condition, so I left the "after repair value" the same as the purchase price). My goal is to live-in one side, then after the two-three year period for FHA, move out and continue to generate cash flow. The estimate below is as-if both sides are rented and W/S/G is paid by the tenants. CapEx is included, but is considerably lower because it's a very new, excellent condition property (I considered things such as paint, appliances, flooring that would be needed while we still own the property).

Purchase Price $350,000

Purchase Closing Costs $1,300

Total Project Cost $351,300

ARV $350,000

Down Payment $12,250

Loan Amount $337,750

Amortized for 30 years

Loan Interest Rate 4.6%

Monthly P&I $1,731.46

Total Cash Needed $13,550.00

2% Rule 0.85%

Initial Equity $12,250

Monthly Income ($1500 per unit) $3,000 

Monthly Expenses (Including CapEx) $2,607

Monthly Cashflow $392 

Pro Forma Cap 7.28% 

Total Cash Needed $13,550.00

Cash on Cash ROI 34.73% 

Purchase Cap Rate 7.28%

Est Vacancy $150

PMI $200

Est CapEx $63

Insurance $80

P&I $1,731.46

My only major concern is that I'm not meeting the 2% rule (and just short of 1%, even), but this is probably the closest property I've seen, and has a significant cash on cash ROI. Any advice? Is my thinking reasonable in a competitive market?