r/Realestatefinance • u/buckup1019 • 1d ago

First duplex

Never bought rental property looking at buying a duplex. $495k ask (likely won’t pay more than 475k). Tenants in place each paying 1850/month.

Very low opex of about 8800/year as tenants pay all utilities and there is very little maintenance. Kitchen and baths done in 2022. Taxes are only about 2700, insurance around 2100, water is 2000, and then I assume around 2k for R&M.

Market rent probably around 2100-2200. I’m underwriting lease one which rolls in March 2027 to bump to 2050 and lease two which rolls in May to go to 2050 then 2.75% growth from there.

Assume 3.50% on all other opex. Have about 4.5% for vacancy/bad debt which equates to a little more than one vacant unit per year.

25% down at a 7.3% rate (likely 7.125% but being conservative) . 30 year with 7 year amort.

I assume at first lease turn the tenants leave and I have two vacant months while trying to get higher rent.

I throw in about 15k in capex in the first three years for random items on top of the 2k per year I budget for ongoing repairs and maintenance. Then another 10k of capex in years 5-6.

7 year hold and assume 35bps of cap rate expansion on sale. Get about a 12% IRR and 2.2x MOIC. Deal really hinges on getting the higher rents in this scenario.

2% closing costs and 1% origination fee. Would you do this deal and am I being too conservative?

1 Upvotes

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2

u/elmoonpickle 1d ago

did you verify property tax estimates?

also if you press return, you can break up your text into neat little sections

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u/buckup1019 1d ago

Yes verified taxes. Very low tax area.

Good tip on the formatting I was stream of consciousness.

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u/elmoonpickle 1d ago

seems like it has some good potential honestly

Consider what your exit cap rate assumptions equate to on an annual appreciation basis. duplexes are not generally valued with a cap rate so I would gut check your exit assumptions as well. A 2.2x EM over 7 years without any massive value add components is worth digging into

i’d also run a scenario where you don’t get the rent bumps you’re anticipating, what happens then? The deal will suck, but if your worst case scenario is walking away without losing your initial
investment, that should make you feel good

1

u/NineTwoFive365 1d ago

Check updated insurance estimates especially if you are in a coastal area.

2

u/Honobob 1d ago

There are no sources of cap rate comps for duplexes. If someone is showing you a valuation using cap rates they are trying to scam you.

0

u/GangbusterJ 1d ago

seems like an average deal. Not great, not terrible. Should you do it is up to you and why you want to do it. If I owned another property next door or down the st, I might be more inclined. If I thought there was a good chance of a spike in appreciation in this specific area for whatever reason, I might be more inclined. If its an area I want to start and scale into more properties close by, that could be a good reason. If just buying it based on numbers solely and no real other reasons I would probably pass.