Hi,
I just saw a duplex today. The house is a duplex. It is thirteen years old house in a decent neighbourhood. Each of the unit is renting for 650 dollard. There are four garages two of which is associated with the rental price of 650 dollar. Rest of each of the garage is rented out for fifty dollar each. Thus total income is 1350.The asking price of the house is 130000.
Here is the expense part:
With 20% down the mortgage amount comes to 655. (6.5 %)
The tax is 4200, the insurance is 300. The house is in a nice condition. So I do not know what expense I will incur here.
The owner pays trash and water which comes to 70 dollar per month. I would like to know if this is any good deal. Especially I am having trouble in estimating the return as I do not know what should be the expense value. Thanks.
Don’t “buy” your cash flow by putting more money down to make the numbers seem to work better. There is an opportunity cost to that money you’re putting down…money that your money could be making you if it were used elsewhere.
Let’s look at the numbers here:
Gross rent:
$1350
NOI (50% of your gross rent) = $675
Debt service:
130k at 6.5% for 30 yrs = $821.69/mo
Cash flow:
NEGATIVE $146.69/mo total or about $73.35/mo per unit.
The 50% rule means on average you will run about 50% of your gross rents in all the expenses on the property. The other 50% ($675 in your case) is left over for debt service and cash flow. The only ways to make the numbers better are to either negotiate a lower purchase price or raise the rent. If your rent is already at the market rent level for these units in your area, you would need to buy the property cheaper to make it work out. Otherwise you’re just buying an alligator that’s going to eat away at your finances on a regular basis for the next 30 yrs.