Analyzing duplex/triplex deals

[Derek Epperson]

Hey everybody. Making a move to do a different city/state soon for new job and contemplating looking at buying a duplex/triplex my family and I could also live in for the first year until we get more familiar with the area to buy another single-family. I'm a newbie in REI so thought this would be a way to get started then have an income property after we buy another single-family.

Two questions:

1. What's a good formula to evaluate such properties?

2. Being new to an area, what's the best way to find these properties?

Thanks!

[Lance Johnson]

As an investor, you would evaluate a duplex/triplex exactly the same as you would a single family, but you would want to split some things out on a per-unit basis. For instance, make sure you are calculating repairs and utilities on a per-unit basis. (Utilities are likely just water, and then it depends on how the water is metered as to how much you can really know.)

One advantage you have when buying multi-family is that, almost without exception, the previous owner was renting out part (if not all) of the building. This means that you are buying not just a property, but an existing business, and as such, you should make sure you get copies of the accounting records for the business. This will include actual rents received, actual maintenance done, taxes paid, utilities, etc. It can be hard to get these same data points for SFH because they simply may not exist.

Build out a spreadsheet and forecast what will actually happen on a going forward basis. Of course you can't predict things perfectly, but you should be able to at least figure out how close you are to a good deal. If you couldn't tolerate a 20% increase in predicted expenses or a higher vacancy rate, you probably don't have a good deal.