So, they’re currently asking $219,000. If I were to finance all of that, and get, say, a 7% loan, the mortgage would be $1457. Plus roughly $250 for taxes, let’s say $100 for insurance (I need to research costs for insurance on a non owner-occupied property. I know it’s more, but I don’t know how much more). Plus $80-ish for the water/sewer/trash bill. That adds up to $1887 in monthly costs (not including repairs/maintenance). To cover that, I’d need to be able to rent both top and bottom (both two-bedrooms, but the bedrooms are small, and the place isn’t in the greatest of shape), for $950 each. I’m not sure that that would happen. I’m doubtful that that would happen, actually.
From the info on the assessor’s website, I know that the current owner bought the duplex 5 years ago for $183,000. And they’ve had terrible luck with it, it’s been empty more than it’s been full. If I were to put in an offer for 183, the mortgage would be $1218/month. This brings the total monthly costs down to $1648. If I were able to rent each unit for $850/month, that would cover the rent, with about $50/month to spare. Not great cashflow, but cashflow nonetheless. If I were able to rent them each for $900/month, I’d get $150/month cashflow. I’m not sure that I could get that, however. The current landlord is clearly in over his head, and not very good at managing the property, but I also think that it’s not the kind of place people are necessarily clamoring to live in. It’s in decent shape (last I saw, anyway), but the bedrooms are small, there is carpet in some rooms (vs. hardwood floors), and the yard definitely needs some work. (As does my own).
If I were to put in a total lowball offer of $170,000, I think I could do very well. The mortgage would be $1131/month, with total expenses equalling $1561. If I were renting out the top and bottom for $850 each, I could cashflow about $150 each month. If I were able to rent them for more, it would be that much more profit.
Also, I’m figuring these mortgage payments based on a 7% interest rate; I have good credit, but not a ton of equity in my house at the moment, so I’m not sure that the banks would give me today’s best rate (currently somewhere around 6.25%). When I bought my first duplex, I made the mistake of figuring out the numbers based on the “best” rate that everyone was posting, but it turned out that I couldn’t get it, due to the debts that I already had on the table, and my loan to income ratio. This time around, being self-employed, I don’t expect that I would fare all that much better.
Outstanding questions I need to resolve:
1) What can I qualify for, loan-wise
2) What would insurance cost me for a non-owner-occupied duplex?
3) What kind of shape is the duplex in, and what would be required for repairs?
4) Oh, and how badly does the owner want out? How low of an offer will they accept?
5) How much cashflow do I need to make the investment worthwhile?
- Cashflow... a new addiction.
- Property taxes... and the info on the assessor's website
- Thinking about another duplex. But only if it can cashflow.
- If you can't rent it, sell it
- The duplex disaster next door
- The owner-occupied duplex tax shelter
- Do It Yourself Refinancing
- Pros and Cons of Owner-Occupied Duplex Living
- Investment Property and the Single Girl