Analysis Of Duplex Deal??

Does anyone know of a good tool or formula I can use to decide if the duplex I have found is a good investment? I have all the numbers, and I have already made them an offer and they countered.
I guess a spreadsheet would be helpful as well.

Any help anyone could provide would be appreciated!!!

Chris

Comments(17)

  • miraclehomes27th July, 2004

    rents that each side will get
    multiply by 6
    multiply by 12
    This is what you should pay for the property in a best case scenario

  • sharpREI_PA27th July, 2004

    Do you mean multiply the one sides rent by 6, and the other sides rent by 12?

    Thanks!!

    Chris

  • kasm27th July, 2004

    You take the total rent on the property,
    multiply this by 6
    multiply this by 12

    for examply
    500/month rent x 6 = 3000 x 12 = 36000.

    36000 is a best case senerio price to pay.

    Kim grin

  • Dumdido27th July, 2004

    What do you mean by multiply by 6 then by 12? Just multiply rent by 72 to get a purchase price that is a good deal?

    I did that with a property I am about to buy and came up with a number that seems too high to allow much cash flow. I am buying for less then that.

  • sharpREI_PA27th July, 2004

    Ok...thanks guys...

    I did it both ways and got the same results.

    Thanks again wink

    Chris

  • ray_higdon27th July, 2004

    Look at the cap rate

    All monthly total expenses (mortgage, insurance, taxes, lawn maintenance, 5% vacancy, 5% repairs, utils if tenants don't pay, any other expenses) x 12, divided by the purchase price, anything above a 9.5 is typically a good deal.

  • Dumdido27th July, 2004

    "All monthly total expenses (mortgage, insurance, taxes, lawn maintenance, 5% vacancy, 5% repairs, utils if tenants don't pay, any other expenses) x 12, divided by the purchase price, anything above a 9.5 is typically a good deal. "

    I'm new to this, so maybe I'm missing something. But this formula does not make sense to me. You are takeing the anual expenses and dividing by the purchase price. There is no factor in that equation for rental amounts. A building with high operating costs and high rent can be profitable. At the opposite end a building with low operating expenses and even lower rent will not neccesarily be profitable.

    Doesn't the formula to determine a good deal have to include the rent in it?

  • DVTFG27th July, 2004

    "All monthly total expenses (mortgage, insurance, taxes, lawn maintenance, 5% vacancy, 5% repairs, utils if tenants don't pay, any other expenses) x 12, divided by the purchase price, anything above a 9.5 is typically a good deal. "


    I did a hypothetical on a $100,000 property getting $1000/mo. and got a ration of .135. Is that 13.5?
    [addsig]

  • c5hardtop27th July, 2004

    IMHO, from info in this tread:

    72x monthtly income = Good luck trying to find a decent property for this in most markets. For older stuff, I usually use try to buy under 84x monthy income (7x annual), I have found some for 72x, but its difficult. Not a great way to judge, since many old properties can be found at 72x all day, and many new duplex are bringing over 100x.

    Projected net Cap Rate = probably a better way to judge apples to apples, since the newer property may have less expenses, and lower vacancy. Correct formula is:

    Cap Rate = Net Income / Cost

    Net Income = Projected income - 5-10% vacancy - 5-10% expenses - Insurance - Property Taxes - other expenses

    Common other expenses would be association dues, yard maintenance, or such. Vacancy and expense rate can be estimated from tax returns. Debt service is not incuded in the net figure used for cap rates.

    For some perspective this is what I have bought duples wise, within last year:

    1978 Duplex, Brick, $450/month rent, $78k
    - $3-4k in upgrades, rents at $495 now
    1986/7 Duplex, Vinyl, $450/month rent, $70.5k (each)
    - $2k in upgrades, rents at $495 now ($520 with yard maintenace)
    1999 Duplex, Vinyl, nice area and quality, $575/600 rent, $113k
    - $1.5k in upgrades, one side rent moved to $640, other under old still, $575.

    Some area new duplexes are listed in MLS at $150k (rents $675 per side), $156k (rents $650 per side). Some low quality older stuff at ~$78k, $450 per side.

    Hope this helps.

  • sharpREI_PA27th July, 2004

    Hi,
    Thanks for all the replies. This is what the deal I was working on looked like:

    Asking price: $49,900
    Monthly Rents: $290 + $300 = $590 * 12 = $7080
    Taxes: $1180
    Ins: ??

    Tenants pay ALL utilities. These are all the numbers I have right now. I have to get the rest from the seller like other expenses. I would be managing it myself.

    Based on those items, what would be a good offer price? According to what was said on this site by some, the most I should offer should be around $43,000. I already offered $41,000 and he said he was staying at $49,000 cause it was rented.

    I think I am walking. Seller isn't motivated and thinks he is sitting on gold!!

    Thanks again..


    Chris

  • ray_higdon27th July, 2004

    The cap rate certainly takes into account rental money, c5hardtop did a better job describing how you calculate cap rate than I did. Also, I use monthly income x12 x7, people use different numbers for their needs.

  • edmeyer27th July, 2004

    My suggestion may go a bit counter to what the others are saying. I rarely pay attention to normalized ratios such as gross multiplers or cap rates other than that they may get my attention. I view them as advertising for the seller.

    Your initial intuition about a spreadsheet is a good one. Once you make a spreadsheet to analyze one property it can be reused for others. What I have developed allows for up to two loans and first calculates gross income and debt service. I can play with the down payment, loan terms etc. Then I calculate known expenses such as insurance, taxes and manage fees (if any). I usually estimate maintenance at about 11%. Then I calculate the cash flow (income - all expenses). I can then make a buying decision based on this information and what I know about the market.

    Incidently, most of the properties are duplexes and this has worked quite well.

  • edmeyer27th July, 2004

    One other thought. There is a package in the My Tools section of My TCI called the ProFormanator. It allows you to do these calculations and then gives an opinion on the investment. This may be of some help also.

  • ray_higdon27th July, 2004

    I don't think you went counter at all, bottom line is the numbers. I do my own cap rates and cashflow analysis, the seller has never been as pessimistic as I am with the numbers.

  • sharpREI_PA28th July, 2004

    Ed,
    Do you think you can send me a copy of that spreadsheet you use? Seems interesting.

    Thanks!!

    Chris
    **Please See My Profile**

  • fruend29th July, 2004

    I have own and built them . working on a progect
    to bulit them in rual Misouri. next to single faimly
    they will rent before multi family and for more money. In St Louis metro area they are very
    hard to find that we built in the last 25 yr
    do to hard zoning on the. ,Villa to own are
    a differant matter.

Add Comment

Login To Comment