Duplex Needs Analyzing

[Account Closed]

I am looking at duplex that grosses $1,590 per month and the sales price is $103,200. I am looking at approximately $9,540 in annualized expenses using the 50% rule. My monthly mortgage payment would be assuming a 20 year fixed rate loan at 7% with a 20% down payment roughly $640/mo. That brings me to a net positive cash flow for the year of $1,860. Is this a good deal for my first property? If not...this would be one heck of a tax shelter. :mrgreen:

Thanks for the help.

[J Scott]

I think the negative cash-flow determination is based on the fact that if the deal were 100% financed, it would lose about $5/month. So, essentially, it's break-even.

Remember, any negative cash-flow property can become cash-flow positive if you buy enough equity (i.e., more down-payment).

And that's essentially what is happening here. At 100% LTV, it's breakeven. At 80% LTV, it's cash-flow positive of about $75/unit/month.

The bigger issue is that even with the 20% down-payment, the cash-on-cash return is still only 9%, and that ignores the rehab/make-ready costs, the closing costs and loan costs associated with purchasing the property.

In this market, I don't see much reason to settle for 9% COC return long-term with a 20% down-payment.