First Property - Duplex in Tx Help on Numbers

[Ernest D.]

Hello BP,

This is my first property to seriously analyze since looking for a duplex in the Houston area. I cant seem to get the numbers to work for me and am asking for your help.

I am analyzing these number as if both units were rented out, but i do plan to house hack for at least the first year.

FSBO

Asking: 199k

County appraised: 145k

estimated rents in the area: 1200 per unit

estimated property tax: 300 month

estimated property insurance: 120 month (very loose estimate)

estimated vacancy: 8% ($192 a month based on 120,000 purchase price. I used 120,000 because that is 80% of appraised value. i question this.)

Loan would be FHA with 3.5% down.

Based on 120,000 purchase

loan amount: 116,400 over 30 years

down payment 4,200

4.0% interest

P&I 555.71

using the 50% rule i come up with the following expenses:

50% of income: 1200

P&I: 555.71

Vacancy: 192

Insurance: 120

Property tax: 300

Total: 2367

This equals a cash flow of 32.29

Am i over compensating for expensive by not including vacancy, insurance, ect into my 50% rule amount?

How should the county appraised amount compare to the asking price? Other duplex's in the area reflect the same appraised amount.

[Sharon Tzib]

The 50% rule covers taxes, insurance, PM, vacancy, maint and repair, etc., so you are double accounting for some of those expenses, which is hurting your numbers. Also, vacancy is calculated as a percentage of the monthly rent, not the value of the home. So in this case, 8% of $1200 rent would be $96/month vacancy factor.

The 50% rule is a just a quick way to screen a property to see if it is worth a further look. If you know more precise numbers, it is much better to use those than lump them into the 50% rule. Hope that helps you.