@Jaysen Medhurst You're definitely right, I should be more specific with my estimated expenses. I'll have to do some guess work and rounding, but if I were to split out all of my estimated monthly expenses, I think it might look something like this:
- Mortgage: $468.84
- Current Property Tax AVG. / month: $125 (not including the homestead tax exemption)
- Home Insurance Avg / month: $108 (I'm actually still looking for a good insurance agent who can help me with this)
- General maintenance/ wear and tear budget: $100
- Vacancy rate estimation: 10% of gross rent, or $150
- Property management rate: 10% of gross rent, or $150 (I'll be self managing, so I'll pay this to myself!)
- Large CapEx items: $152.77 (10.1% of gross rent)
- Budget to replace the roof in about 8 years for around $8,000: $83.33
- Budget to replace the 2 new furnaces in 15 years for $8,000 including labor: $44.44
- Budget to replace 2 new water heaters in 10 years for $3,000 including labor: $25
If my math is correct, then that puts my total estimated expediences at $1,254.61 leaving only $245.39 total cash flow (or 122.70 / unit)... I had originally estimated $140 cash flow /unit using the 50% rule, but by breaking everything down I can see that it would be more like the 52.3% rule for expenses.
I should have clarified more in my first post, my intention is was to house hack this property at first (maybe for a year or so) and then rent out both units afterwards. Just like @Andrew Terrell I was only running the numbers as if I were renting out both units, because that is the ultimate end goal of this property if I end up buying it. While I am house hacking in it, my cash flow would be -$354.61 per month
I do have enough savings to take care of the 5% down payment, closing costs, and water heater issues, with enough of a reserve left over for 4 months of full mortgage payments, just in case it takes a long time to screen a good tenant.
@David Thompson The property tax rate in Michigan varies a lot by the city, but for this property it is about 1.57% of the market value. It would be cheaper while I'm living there due to the homestead tax exemption. Also, That's an interesting idea about the repair allowance for the water heaters, I hadn't thought of that negotiation tactic before... I was originally just going to try to get the seller to reduce the price due to the needed repairs, or ask the seller to fix the water heaters themselves before closing, since this is a repair item that would need to be fixed asap.
@Andrew Terrell Yes I'm very comfortable and familiar with the neighborhood, I have a friend and a few family members who live a few blocks away so this would be pretty convenient for visiting them. Just out of curiosity, do you prefer to live in the top half of your duplex or the bottom half? Or are yours side by side? I'm thinking the top half would be nice since I wouldn't have to hear footsteps above my head. Anyway, I'd like to do what you're doing, house hacking one property after another and building your portfolio! I definitely agree that it would be a good idea for me to reach out to a local investor for a sanity check on this. I really should try to start going to meetups or something!
Thanks for your feedback everyone, you all gave me some very valuable points to think about moving forward!
