My friend is underestimating expenses on duplex in Dallas TX

[Andrew Sampino]

Hi everyone, I have a friend who is considering purchasing a duplex in Dallas TX. He refuses to budget for vacancy and capex. I'm trying to convince him to be more conservative but am having a hard time since I really don't have much experience, so I decided to turn to the collective wisdom of the nice people of biggerpockets. In his defense, this is my first analysis, so please let me know if I miss anything. Here's the deal as he wants to do the analysis, any input is appreciated: Listed Price: $360,000 Square footage: ~2500 Bed/bath per unit: 3/2 for both Current rent: $1375 and $1300 Monthly taxes and insurance: $525 Estimated monthly mortgage payments on $288,000 30 year loan (80% LTV): $1500 Estimated monthly maintenance costs: 5% of gross rents ($134) Capex: 0 Vacancy rate: 0% Garbage/heat/lawn care: 0 (not sure if tenets pay these. Is it realistic to push these off on tenets? If not what are average costs for this area?) Total monthly expenses: $2159 Monthly cash flow: $516 Cash on Cash: 8.6% We don't have actuals on expenses yet, so for now we're trying to hammer out a good estimate. I believe tenets pay electric/water. They are long term tenets and he would plan to keep them and maybe increase rents slowly over the next couple of years. Let's just assume he pays full price. I'm concerned with the deal because the expenses he assumes are low especially since he plans on keeping the property for 20+ years. Additionally the property yields negative cash flow with the 50% rule. Does anyone have any thoughts on this?