Rooming house investing // jitters

[Joshua Feit]

I have an opportunity to purchase a duplex in a C/D neighborhood -- 8br/6ba total. It's a newer property (2009) with very little maintenance (just some carpet, paint in some rooms, etc.), new HVAC, great roof, etc.

Though it is not a great neighborhood currently, it is right down the street from a MAJOR Atlanta infrastructure project that has already begun and will finish in 5-10 years. I have wanted to buy something in this neighborhood for a long time.

I have networked with someone who is recommending setting this up as a rooming house, no leases but billed monthly (not weekly).

Here's how it pencils out:

Purchase price:
$100,000 // +$5,000 for conventional mortgage closing
(An identical duplex on the same street recently sold for $123,000)

Initial renovations:
$5,000

Rent:
$500 x 8 = $4,000/month

Income - Coin Laundry:
$200/month

Total income:
$4,200

Monthly Expense Breakdown:
Debt service: $800 (P/I/T/I)
Management: $400
Repairs: $400
Capex savings: $400
Gas: $150
Electric: $150
Water: $150
Internet/Cable: $150
Vacancy: $750 (planning on 1-2 rooms empty a month)

Total monthly expense:
TOTAL: $3,350

Cash flow:
TOTAL: $8,500

QUESTIONS:

1) Do these numbers seem conservative? Inflated? Am I missing anything?

2) Am I crazy for thinking of giving this a try?

3) This property could also be set up as a Section 8 duplex for $1,000 a side. Those numbers pencil out too, so there is an exit strategy if the rooming house is too much aggravation. I'm intrigued by the rooming house setup, but do you think it might be better to just go for a conventional rental setup?

Thank you for your assistance in sorting this through!

[Account Closed]

You need to factor in a cleaner for the common areas (kitchen, bathrooms, hallways, living room) once a month. Unless you want to do it yourself. Around here it averages $100 / cleaning, but with more bathrooms will be more. It gets dirty fast until the tenants learn to clean up after themselves. There should be basic cleanliness rules on that as well. (Also when the trash pick up comes).

If the area has a good market for rooms, you vacancy factor is more like 0%. So long as you vacuum the room and list it right away. It should get filled quickly. If someone turns over before their month is up, I tend to make extra rent money for the month by filling it again. The tenants I qualify tend to stay long term though on month-month room rental leases that don't need to be renewed.