Questions about a Duplex deal...living in one side

[Ryan Ogilvie]

Hey all,

I am new to bigger pockets. I have already listened to about half the podcasts and have been reading the forum whenever I can. It is a great site and nice to see how helpful the whole community is. 

I was lead to BP by a duplex for sale I came across and wanted to find some additional info. I have been trying to decide whether or not this is a good deal for a few weeks now and am still having some trouble. I know that there are thousands of posts on this topic and I have read many of them but I wanted to get some feedback on this specific case since it would be my first time purchasing and I don't want to make a huge mistake. From trying to run numbers using BPs calculator as well as I believe Jay Scotts excel spread sheet I found on the site it doesn't seem like it would have great cash flow but it is a home I would feel comfortable living in so I would be house hacking it and the plan would be to be able to quickly save money to invest in other properties that have better cash flow. 

The numbers I used look like this:

Asking price:260,000 

Would need about $10,000 in work 

Each unit is 3 beds 1 bath and from doing some research should rent for $1200 per month

Taxes: $580 per month

Vacancy: 8% - $2400 annual

Insurance - $1000 annual, kind of a guess house is over 100 years old

Maintenance - $2000 annual 

Utilities - $250 annual

Variable cost 12% - $3168 annual

By putting 10% down it is estimated I will have negative cashflow for the first couple years assuming I rented both units for the same $1200. 

I think the asking price is high and would like to know what you think. It is hard to comp it because it is a large house each unit is a little over 1500 SQF and one side has been completely remodeled. It is also in a nicer section of town then any other duplex on the market. From looking at it from a cash flow perspective I see it wouldn't be a great investment but I was wondering if house hacking it and having a small mortgage payment would off set that. I also feel I was somewhat conservative with my numbers.

Any input would be greatly appreciated!

[Bryan O.]

$580/month for taxes seems incredibly high. Is that per year? I'm out in Colorado and for that price home I would expect around $100/month.

$250/year for utilities seems quite a bit low. Is that per month?

How did you estimate the $2000/year for maintenance?

Vacancy rate is something you have good control over. If you are living next door I would count on much lower. You have easier ability to show and fill vacancies, and my neighbor tenants are more likely to stay because they enjoy knowing I am right next door if something breaks. I would lower that rate for my projections.

Assuming your taxes are wrong you can project positive cash flow if you rented both sides. Not much, but some. The other big gotcha is rates. Is $1200 the market rate right now? I just bought a 3-plex with not great cash flow, but because the rents were far enough behind market it was a good deal.

Is there a reason you would use 10% down rather than 3.5% with FHA? Either way you will have to pay PMI so you could keep that money aside for another property to really get cash-flowing.

Just some things to get you thinking. Best of luck in your adventure!!

Regards,

Bryan