appraising a duplex?


I am currently trying to figure out if I should go for a single family home to rent out or pick up a duplex. I am wondering what determines the price of a duplex (aside from maybe location and condition)?

For example, do you look at potential rent and times it by 100?

Also, how does a duplex go up in value? Like a home?

For example, let us say that I buy a duplex that costs $100k. With both units rented, say $1000 per month total.

12 months later, I want to sell. Units are still rented at $1000 per month total. Is it still only worth $100k?

Also, is there one must-have course/book on how-to buy, run, and profit from multi-family homes?

I read that rule of thumb is to expect 40% of gross rent to be spent on expenses. Is this accurate?

Lastly, how difficult is it to buy duplexes with 10% down, getting the seller to carry some, etc.?


Howdy Evergreen:

Like you said location dictates the value more than anything else. I see duplexes here in Austin at 100 times rent. In California and other HOT areas it may be 200 or 300 times the monthly rent. I just bought a duplex for $12,900 that will rent for $600 per month after about $7000 in repairs. I like those numbers better and am looking at a 4 plex with the same numbers.

Expenses can be tricky. Figure the expenses you know for sure that are fixed, taxes, insurance and then estimate the rest. Management fee may be zero if you manage it yourself except for advertising, gas, court costs. You will pay court costs even if you hire a management company. Try to guess the turnover. Maybe both will move at the end of a year and you may have to paint and clean once a year. The water heater may go out or the AC. There is no way to know what will happen but you can rest assured something will go wrong. If you figure too much you will never want to own and operate property and if you figure too little you will not be ready when something goes wrong.

Duplexes can appreciate even if rent stays the same. As interest rates declined values have climbed. Investors needed less income because of lower interest rates and lower cap rates were needed. An appraiser will use the market approach more so than income approach to value a duplex. He will look at other property in the area and give it more weight in an appraisal, more so than figuring the income and expenses and cap rate.

With excellent credit you can get 100% financing from the mortgage companies. Some will loan you 90% at a low rate and then a bit higher rate for the other 10% of the value. Try to find them below market maybe needing some fix-up to insure better cash flow. Any one can pay retail it takes a smart investor to ferret out the good deals.

Thanks for the reply. As I will be an out-of-state owner, I can’t manage myself. Thus I assume I need a PM company.

As to value, I just read about Gross Rent Multiplier and how to value a property using it. However, not what is a good and bad GRM. I looked at two props. One was 9.1 GRM and the other 12.9 GRM. Leads me to believe the 9.1 is nice.

I figure the best thing would be putting all the money I collect from rent away for the first two years until I learn what to expect. That way I am set.

I really want to start out with a low cost duplex to get my feet wet. I see them for about 50-60k all over Ohio. I also looking in San Antonio and Tacoma (which is much higher).

Also I read that lower to middle income props are much better overall.

Dear Evergreen,

I own and manage duplexes in Houston, Texas and have for several years. Listed below are some of the advantages to owning multi-unit income producing properties:

  • Closing costs at the time of purchase are less than buying two seperate properties. Contact a Title Company.
  • The down payment can be lower IF you plan to live in one side. Contact a lender!
  • Getting financing as an investor for a duplex is very similar to getting financing for a single family property. Contact a lender.
  • If one side is vacant, the income from the other side helps to off-set the expenses for both sides.
  • The value of the property changes with the area market the same as with a single family property or any other type property.

It is hard to use a formula for variable expenses, since the age, condition of the building & tenant are the major factors in determining the maintenance costs.

When making a buying decission you need to have as much information as possible about the fixed and variable income and expenses of individual property you are considering.

I suggest working with a Realtor that specializes in and has personal experience in investment type properties in the area you are interested in.

A local Realtor will be able to provide you all of the information that you need to make an informed decission. Most of the time the Seller pays the Agents commission.

Houston, Texas in one of the best market in the country to buy investment type properties.

Good Luck!
Donna McDermed

I will check it out.

I guess the “main” thing would be if the duplex was going to have a positive cash flow.

I read in a book that a top thing to look for in a duplex is if the units are under rented. Being under market is a good thing.

I am also looking at properties using this Gross Rent Multiplier formula and it is interesting. I can see what properties “might” be better deals.

Just finished another book. It basically said to never think of appreciation when buying a duplex. The only way it is going up in value is if:

  1. You raise rent
  2. You do repairs that were needed and/or add to it–like upgrades.

So it seems like I should find a duplex that:

  1. Is renting under market
  2. Is full, since it will be my first.
  3. Needs little in the way of repairs since it is my first.
  4. Is selling at an annual GRM of less than 8–unless very under market rent and THEN, us that info to get seller to sell on what is actually being collected and not what “could” be collected.
  5. can be talked down from listing price to make it the best deal–assuming the money you talk the seller down is the equity you will gain for the life of ownership.
  6. is cheap so I get my feet wet without killing myself.

Seems like low income places are where to be for lower investment needed and good returns.

Evergreen -

The thing I’m most curious about is, why are you looking for out of state properties that you won’t be able to manage yourself?

My line of thinking is this…

if you’ve never managed rental property, how will you know if the person you hire is doing things correctly? Or being cost efficient?

I realize A LOT of people pay others to manage their properties, but it’s definitely not the most cost effective way to go, and with no first hand experience I see many, many potential pitfalls.

I’m just curious why you’re focused on properties in other areas instead of buying something local to you to get your feet wet with.

Just a thought…
Karla in Amarillo