How does this duplex deal sound?

[Jarred Tate]

Good Day to All,

My name is Tate and I currently reside in Corpus Christi, TX. This is my second time posting on BP. My wife and I are getting ready to purchase a duplex. Side A is 3/2.5 and side B is 2/2. There is a carport on the back of the property with four spaces. I am inquiring to see if this is a good deal. Below are the details.

Side A rents for $1475 (VACANT). Side B rents for $1000 (OCCUPIED). Purchase price will be $210,000 with the seller paying up to $5,000 in closing costs. Closing costs are looking to be about $5,000.

Our loan will be 20% down at 5.25% for 30 years. P&I=905.61. Insurance=~$140. Taxes=$343.91.

Both units are in good shape (no repairs, maybe paint, but not required) and are separately metered for water and electric. Side B tenant moved in last week on a 1 year lease. The plan is to meet up with the seller in the near future and write up a contract. Once the contract is written, we will order inspections and re-negotiate price if needed based on repairs. For those who know about South Texas, the property is windstorm certified.

Based on the numbers, would you purchase this property? Thanks for you input.

[Ben Wilkins]

Ok - I looked a little deeper, and I'm starting to have a few more questions.

You stated $400+ per month cash flow - since I came up with almost $300 in my initial look, I didn't really think much of the difference.

After looking a little more, I started thinking that you might be skipping a few expenses:

1. Are you including a maintenance savings?

2. Are you including a CapEx savings?

3. What vacancy are you assuming?

4. Are you planning to manage it yourself forever? What PM percentage are you setting aside as an expense? Is your time worth some money? What if you decide to pass management to someone else later down the road?

5. Are you including your own electric bill, or is there a third meter for the "common areas"?

So some quick math to explain where I'm coming from. Let's say you get a second tenant, and your total income goes to $2,400.00 per month. My assumptions are as follows:

Annual Property Tax: $4,000

Annual Insurance: $1,000

Annual Utilities (someone has to pay sewer / trash): $1,000 (which is really low)

So annual expenses are $6,000 which is $500 per month.

Mortgage is $927.70 per month, which brings your expenses up to $1427.70 per month

Now let's add in the "percentage expenses"

Maintenance: 10% of income ($240 per month)

CapEx: 10% of income ($240)

PM: 10% of income ($240)

Vacancy: 8% of income ($192)

Total percentage expenses: $912.00 per month

Total expenses: $2,339.70

Now, if you want to make the cash flow look good you can take out PM. You can also ignore Maintenance, CapEx, and Vacancy if you want, but you'll put yourself in a bad situation if you get an extended vacancy or if you have to replace the roof, siding, water heaters, etc.

While you will still cash flow, it will be a lot less than $400 per month unless if you take the risk and don't set aside savings for maintenance and CapEx.

You may have included those in your numbers, but if you did I think we arrived at different conclusions (or I'm missing something)

Food for thought!