Analysis of duplex in Tacoma, WA

[Mike C.]

Hi all,

I'd like some input on a duplex I'm analyzing in Tacoma, WA.  It's on the northeast side of Joint Base Lewis McChord, and has been on the market for almost 50 days.  My thought is that the deal is okay, but not great.  I would really like to get the input of other experienced investors, as this is my first time going through the analysis and I'd like to see where I may be applying either too little or too much conservatism in my assumptions.

• Specs:  Duplex built in 1942, each unit with 2 bedrooms and 1 bathroom
• Purchase price / financing: $185,000 with 25% down at 5% (P+I = $745)
• Rents:  2 units at $800/unit/month (estimate from Rentometer, Craigslist, and calling a property management company) = $1600
• Insurance:  $45
• Property taxes:  $175
• Maintenance, repairs, reserves:   15% of total rent = $240
• Utilities:  $50 (this one is a guess and probably just adds on conservatism since the tenant typically pays this, right?)
• Property Management:  10% of total rent = $160 (doesn't account for fees to get the units rented)
• Vacancy:  10% of total rent = $160
• Cash flow:
  • Assuming a 15% conservatism on all expenses:  -$211.55
  • Assuming a no additional conservatism on expenses:  +$24.74

I feel like I am being pretty generous with my conservatism, but would like to hear if I'm missing anything or if I've gone overboard.  I'm looking at the 15% as a bit of a "newbie margin," where if things really went south, I'd be shelling out about $200/month.  Ideally I'd like to see that number closer to zero for a really good deal, but that might be wishful thinking about the level of margin to expect in this business...  

Otherwise I pretty much break even with what I feel are moderately conservative estimates on vacancy, maintenance, etc.  (One thing I'm considering is how I could probably do the same or better with a turnkey property, with much less headache.)  In a more ideal world with 5% vacancy, self-management (without accounting for my time) and 10% maintenance costs, I'm looking at a $400/month cash flow.

Any comments or feedback is very much appreciated... thanks!

Mike