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Real Estate Purchase Analysis: Buy And Hold Property #2 – The First Duplex

first-duplex-investmentFor my second real estate investment, I decided to find a duplex.  As with all of my early investments, I was only interested in a property that could fly through the inspection so I wouldn’t have any worries about a major repair in the foreseeable future. After I got this home under contract, I immediately set up an appointment with my inspector. I was thrilled to see that both of the units had recent renovations and both of the current tenants were extremely clean. The home featured a brand new HVAC system, all new plumbing and all new electric. The slate roof was in excellent condition, so I was ready to move forward.

Benefits Of A Duplex

Which is a better investment, a single family home or duplex? Every real estate investor has an opinion and I personally think a well diversified real estate portfolio will have a nice combination of both.

  • Dual income! Obviously the biggest plus to a duplex is having two rents. If one unit is empty, you will still have the income from the other unit coming in. A 100% unoccupied duplex is rare, whereas it is a more common occurrence with a single family home.
  • Consolidated expenses. Having everything under one roof will save on expenses when compared to two single family homes.
  • A downside of a duplex is that should you ever have to sell, your poll of potential buyers is smaller because you will probably only be able to sell to another investor.

Real Estate Purchase Analysis

Purchase Date: November, 2013
Type: 2,300 Square Foot Duplex
Purchase Price: $63,400
Appraised Value: $71,000
Terms: Traditional 30 year bank financing. 5.75% APR with a 30% down payment.
Out of Pocket Costs: $21,172.20

Income And Cash Flow

Equity At Closing: $26,620
Monthly Rent: $1,250 – Both units are fully rented, one at $675 and the other at $575.
Cap Rate: 13%
Estimated Monthly Cash Flow (Using 50% Rule): $366.01
Estimated Cash on Cash Return – Year 1: 23.10%

Expenses

Mortgage: Principal and Interest: $258.99
Property Tax: $108.75
Insurance: $73.75
Utilities:Water/Sewer/Trash: $63.50
Property Management: Free for first 12 months
Expense Fund: Repairs and Vacancies (Using 50% Rule): $379.00
Total Expenses: $883.99

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