Need help analyzing my first duplex deal

[Edward Stephens]

Dear BP Community,

I am looking to invest in a duplex – live in one side (with a roommate), then rent out the other side. I am currently analyzing a deal in my area and would like the BP community to council me. Here are the numbers:

List Price: $184,950Estimated P&I: $826.55/mo

Estimated PMI: $81.80/mo

Taxes:$2617/yr

HOA: $0 (there isn't an HOA)

Estimated Insurance: $1017.23/yr (will get quote from agent soon)

Loan Type: FHA

Down Payment 3.5%

Interest Rate: 3.75%

Unit 1 (4 Bedroom) Rent: $1070/mo (currently leased until July 2016)

Unit 2 (3 bedroom and bonus room) Estimated Rent: $1070/mo

Estimated Monthly Maintenance Expense:10%

Estimated Monthly Vacancy Expense: 10%

Estimated Monthly Capital Expense: 10%

Estimated Monthly Property Management Fee: 0% (I’ll manage it)

Estimated Rehab Costs: Less than $3000

According to Rentometer.com, the rental rate of Unit 1 is $125/mo below the median rent of the area, and Unit 2 is at the median rent of the area. I plan to verify the local rates using more credible resources.

I drove by the place yesterday. There were no obvious issues with drainage from improper landscaping, the roof is in decent shape, and adjacent property owners are keeping the neighborhood neat and clean. There weren’t any eye sores or ugly houses in close proximity to the property in question.

Because I don’t plan to live in the duplex for more than a few years, I applied the 1% Rule and 50% Rule as if I weren’t living at the property, and here’s what I found:

If I had two tenants, one in each unit, this property would meet the 1% Rule because gross income will be $2140/mo, which is greater than 1% of the purchase price ($1849.50/mo).

Also, the 50% rule would be met because $1070 covers my mortgage and P&I (estimated at $826.55+$81.80=$908.35).

***Now for the tricky part***

I want to have positive cashflow on this property after factoring in conservative estimates of all expenses (e.g., 10% estimated monthly maintenance expenses). So my plan is to get a roommate to live in the 3 bedroom (plus bonus room) unit with me. I may be able charge him $662/mo in rent. That way, I still come out with more than $1.00/mo in positive cashflow.

But when I applied the 1% Rule and 50% Rule assuming I won’t personally pay a dime out of pocket for rent, my property doesn’t pass either rule.

Please let me know what I did well/didn’t do well on my analysis of this deal. I’m very new to the real estate investing scene and appreciate any constructive feedback. Please also let me know if I should be at all concerned about meeting the 1% Rule or 50% Rule when analyzing the property without me having to pay a dime. Thanks in advance and let me know if there is anything else I need to clarify. -Edward