How do I earn a positive ROI on Owner-occupied duplex or triplex?

[Ryan Turian]

I'm looking to purchase my first property with my fiancé - an Owner-occupied duplex or triplex. My primary intention is to use the rental income to lessen our cost of living, and then eventually use the BRRR strategy to fund a second investment property and so on.

When analyzing properties I am finding that the income from only one other unit (in a duplex) is not enough to cover the monthly expenses. This is not always the case when analyzing three-unit properties.

If buying a duplex, how do I determine how much we need to contribute monthly to produce a positive ROI, and set aside enough for capital expenditures? Do I set aside my "rental payment" as a forced savings account for Cap Ex?

I hope I'm explaining myself clearly. Thank you guys for your help!

-Ryan, a Newbie

[Jaysen Medhurst]

@Ryan Turian, best I can tell duplexes are very difficult to make work as pure investment properties for 3 main reasons:

1. There are only 2 units over which to spread the fixed cost (costs the same to mow the lawn at a duplex as it does a 4-plex)
2. Duplexes are the most desirable to owner-occupiers (non-investors) so they tend to go for higher per-unit prices, but that doesn't necessarily translate into higher rents.
3. Zoning laws mean duplexes are more likely to be in more desirable neighborhoods, increasing sales price and making them less likely to cashflow.

For the analysis I've done, duplexes just don't make sense as a pure investment unless you get a smoking deal on the purchase price.

I think focusing on 3 or 4-plexes, combined with BRRRR is a better way to go.

With regards to your questions about CapEx, etc.: Yes, analyze the deal just like you weren't going to live there and see how the numbers work. You should factor in your "rent" at market rates to make sure it works. If both units would rent for $800/month, then you figure $19,200/ year Gross Scheduled Rent, minus CapEx, Vacancy, Repairs, Insurance, Management, Utilities, all of the expenses and see where you end up.