Prospective college duplex - Would like your thoughts

[Steve S.]

Here's the quick summary:

- Cost - about $420,000

- Duplex with 4 bedrooms / 2 baths in each unit, built in 2004

- Currently rented at about $1,800 per duplex

- Property taxes about $7,500

Thoughts?  What else could I share that would help?  I'm starting with just a raw numbers run before considering the neighborhood (which is at least a B), etc

[Kevin Siedlecki]

@Steve S. You need to know a lot more info. At first glance I don't like it. But I love running the numbers. My fourth grade teacher instilled a love of logistics in arithmetic. So thank Mr. Mulkhahey at Midland St. School in Worcester, MA for the following:

Assumptions: Financing with 25% down, 5% interest, 30 year amortization. Rent is $1800 per side, not for the whole place. Insurance is $2400/year

Down payment: $105,000

Annual numbers

Gross Rent: $43,200

Debt Service: $20,280

Taxes: $7,500

Insurance: $2,500

CapEx (10%): $4,320

Maintenance (5%): $2,160

Management (10%): $4,320

Vacancy (8%): $3,456

Do you pay for water/sewer? In CT we do because failure to pay those bills can result in foreclosure. Different states are different but let's budget $1000 for that, too.  

That give you an annual cash flow of -$2336. Best case scenario you have no vacancy and cap-ex is a on the lower side, you might get long-term cash flow of $2,000-3,000 a year, $5,000 in a perfect year. As a best-case scenario on a $105,000 acquisition (actually more bc there will be closing costs, too), that's still not a good investment. The absolute highest purchase price I could see this making sense at is about $300,000. Even that isn't a killer deal, just one that will be much more likely to break even for you. It's a loser. Move on!