Is this a Good Deal?

I’ve been contacted by another investor who wants to sell his properties. A duplex we looked at might be a deal but wanted to get some feedback before I make an offer. It’s an up/down duplex and the owner pays the heat/electric/water/garbage. This property was a sfh turned into a duplex. The property will not need any work. It’s an older building but the furnace and roof are newer and the electrical has been updated. The bottom unit rents for $650 and the top for $625. The seller wants 36K. Here are the numbers using bank financing:

6K down

Mortgage payment: $245.13 (15 year loan @ 5.5%)

Taxes : $57

Insurance: $60 (est and this may be high)

Heat/Elect: $300/mo.

Water/Garbage: $100

Expenses Total: $762

Total Income: $1275

I know I haven’t included anything for maintenance or vacancy, and I realize only having one furnace and water meeter is not ideal but thought there might be enough room in this deal to consider making an offer.

Would be interested if you experienced investors think this would be a deal.


Okay, lets see if we can help you out here. First, let’s see if it works against the general investor’s guideline - the 50% rule. That is that 50% of the income will be used to pay the expenses. This does not include a property manager or the mortgage payment but includes everything else. Since you are paying all the utilities (ouch! - rent should go up here), lets add another 10% to the total.

Monthly Income $1,275 less $765 (60% expenses) = $510 per month
Now remove your mortgage payment of $245 and mortgage insurance $25 (because you only put down 16.7%).
Your NOI before tax is $240.

The goal here is to shoot for $100 per month/per unit. So this is a viable opportunity.

Your estimated insurance seems very low. I would put it more like $128 per month. Expenses are generally 10% of income and capital reserves at 5%.

Because you are borrowing less than $50k, you will either have to get a personal loan or get in house financing because the secondary mortgage market will not buy loans less than $50k. This means higher interest rates and more down payment. Make sure you get pre-approved before you pursue this.

Thanks campbellsimon for your response. The bank I work with does keep their loans in house and my insurance est is based on what I pay for another duplex I own.

My concern was not knowing if there would be enough room in this deal given that I pay the heat, elect, and water.