How to analyze a deal where I live in 1/2 of a duplex?

Question

I'm learning how to analyze deals, so bear with me?

Here's the "deal" I analyzed.

https://www.biggerpockets.com/calculators/shared/3...

Here's the loopnet listing (I know loopnet is where deals go to die, but I'm using it to learn how to analyze deals, good and bad).

http://www.loopnet.com/Listing/19454637/2827-Danah...

Its 2 houses on 1 lot.   I would live in 1, and rent the other out.  What do I need to be considering / change / understand if I'm living in 1 house, and renting the other out?   How will it affect those numbers in the grey box?  (Cash flow, etc)

Thanks!

-Chris

Chris Collins · Answer

Thanks Jay! This was my thought exactly, if I was a renter, I would love to have my own space. Obviously as an investor it would need to cash flow, but just seemed like an interesting option.  Definitely learning how to analyze better as I get all the help around here. Thanks to everyone!

Chris Collins · Answer

Interesting. I wonder if that means they bought 1 of the 2 units, or if they just got a steal of a deal. Either way, looks like its off the table. Moving on to the next one!  Thanks everyone.

Jay Orlauski · Answer

My first "duplex" was actually two separate houses on one lot divided by a fence so they each had their own yard and their own entry way. I thought it was a great situation as I was obviously able to collect rent , cover my half with only $200 bucks didn't have to share walls with my neighbor as most multi-family units do.

As far as problems reselling - perhaps this is a regional thing , but it was no problem here - basically, your buyer is going to be an investor. An investor is going to read duplex , then show up and find two separate houses, which can command higher rents than a connected unit because tenants like the idea of living in a "House" instead of an apartment. At least that was was my experience.

For cash flow, I just calculated it like I had both units rented and I was getting a discounted rent. When I eventually moved out I was able to charge full price for the unit and it was cash flowing very nicely.   In fact.. come to think of it , my second duplex was also two separate houses. Neither had a problem selling for almost double what I paid. I guess my point is that two separate houses on one lot seemed like a great find - especially when I was living in one unit - it didn't really feel like I was sharing a space with my tenant - and I think the tenants felt the same way.

Brent Coombs · Answer

@Chris Collins. this came up on Trulia:- http://www.trulia.com/homes/California/Torrance/so...

It's the same address as on your BP Analysis sheet, yes? Cheers...

Alexander Ball · Answer

Hi @Chris Collins

I noticed you already received some answers, but I'll give a brief reply and echo what has been said a bit already.

I've been told the best way to analyze a deal is to assume 100% financing.  For a househack situation (which I guess this is, but different than others I've seen where its a shared roof and not separate buildings) to just assume it is rented out on both sides.  That way when you do move out, it still makes sense as an investment.

Chris Collins · Answer

Brent, where do you find that? And yes, if someone got that, they got a steal!

Chris Collins · Answer

Thanks everyone. Yes, I should have originally written 'I already know its not a 'good deal' but I'm learning how to do the analysis (good and bad #'s).'  So I appreciate the idea of 'paying myself the rent' and running the numbers that way.   Thanks @Will Chamberlin for that nugget.

Brent Coombs · Answer

Comes up as just sold: for $695,000. Is that the same one?

If so, it looks like SOMEONE had skills, negotiating down from $1,500,000!

Lee L. · Answer

@Chris Collins This is kind of a weird deal, and not your average duplex since it appears that the homes are on two separate parcels, so it's not really a duplex but two SFRs. I don't know the Torrance market very well. But if a regular SFR that abuts the street sells for $750k, it should not be selling for $750K x 2 for two on a lot. 2 on a lot brings down the value of both homes (more crowded, no privacy, less yard, less parking).

For $1.5m, you should be able to do much better than a 3+ cap.  Oh ... and I see it's next to an airport. I'd pass, as desirable Palos Verdes is!

Will Chamberlin · Answer

Chris, I would approach the numbers as if you weren't going to live there and see how they net out. Think of it as paying yourself the rent. Then when you move up to the next multi you keep this one and know it will cash flow for you. Use the BP analysis tool or there are plenty of excel spreadsheets for scenario analysis out there. I started with a duplex, not separate houses, but I would think aside from that difference the numbers would work the same way. Bill might have a point on the selling, but maybe not so much of an issue in your area. I think two houses on one lot is more common around LA.