A first duplex where the boring parts carried the deal

This is a useful case to study because nothing dramatic happens in it, and that is the whole point. A side-by-side duplex, two bed one bath each, built 1988, vinyl siding, separate gas and electric, separate water. That last one matters more than most first time buyers expect. Price 268k, 20 percent down, both units occupied at 1,075 and 1,100 on leases with eight and four months left. The model before the offer: 26,100 gross, taxes 3,120, insurance 1,880, water on the tenants, landscaping 900, 5 percent vacancy, 250 per unit per year for capex, 8 percent to a manager. That leaves about 13,000 NOI and a bit over 200 a month after debt service. Unexciting, which is what a first hold should look like. The part that nearly breaks a deal like this: inspection finds the original 1988 furnace in unit B, and the lender's appraiser flags soft trim on the north side. The seller will not credit the furnace, and 3,800 becomes a walk-away question. What settles it is reserves. With 14k set aside separately from the down payment and closing costs, a furnace is something a buyer can absorb instead of something that ends them. Ask 1,500 toward the trim, settle at 1,200, close. The furnace makes it through the winter and gets replaced in April for 4,150, which is more than the 3,800 nobody would negotiate over. That is a fair trade for knowing the install and knowing the date. Eleven months in, unit A renews at 1,150. Unit B turns in month seven, costing 22 days vacant and 1,340 in paint and a bathroom vanity, then rerents at 1,175. Two habits are worth copying out of this. A separate reserve that never gets counted as part of the purchase, and writing the model down before looking at the listing photos so there is no room to talk yourself into a number.

tashaford30 SG2CPRO 16

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laurenkim53 PF4APRO 14

The separate water is doing quiet work in the numbers and it's the thing worth telling a beginner to look for first in a small multifamily. When a building has one meter, the water bill belongs to the owner no matter who runs the shower, and in a two bed unit with a family in it that can be 200 a month nobody planned for. Here it sits on the tenants, so that whole line disappears from expenses. On the reserve, worth pushing a little. 14k is good and it survived one furnace. If a second furnace in the other unit had gone the same winter, plus a 22 day vacancy and a 1,340 turn, that reserve would land around 9,600 out and the 200 a month wouldn't have refilled it. That is not a criticism of a plan like this, it's the reason two units is easier than one. Losing a tenant costs half the income for those 22 days instead of all of it. The furnace decision reads right. Paying 350 more than the credit offered, in exchange for knowing the brand, the installer, and the warranty date instead of inheriting whatever the seller's cheapest bid would have been, is usually the right trade. One question worth asking in a case like this: is the manager still at 8 percent, or is the owner doing it themselves? That 200 a month has an 8 percent line inside it, and a lot of first-duplex owners answer that question by accident in month three.

laurenkim53 PF4APRO 14

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