First duplex closed after 18 months of planning. The boring parts carried it.

I've been the person in this room asking questions for a long time, so here's how the first one actually went.

Side-by-side duplex, two bed one bath each, built 1988, vinyl siding, separate gas and electric, separate water. That last one mattered more than I expected. 268k, 20 percent down, both units occupied at 1,075 and 1,100 on leases with eight and four months left.

My model before I offered: 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 left about 13,000 NOI and a bit over 200 a month after debt service. Not exciting. I wanted the boring version and I got it.

The part that nearly broke it: the inspection found the original 1988 furnace in unit B, and my lender's appraiser flagged soft trim on the north side. Seller wouldn't credit the furnace and I nearly walked over 3,800. What changed my mind was the reserve. I had 14k set aside separately from the down payment and closing, so a furnace was a thing I could absorb instead of a thing that ended me. I asked for 1,500 toward the trim, got 1,200, and closed. The furnace made it through the winter and I replaced it in April for 4,150, which was more than the 3,800 I refused to negotiate over. I don't mind, because I know the install and I know the date.

Eleven months in, unit A renewed at 1,150. Unit B turned in month seven, cost me 22 days vacant and 1,340 in paint and a bathroom vanity, and rerented at 1,175.

What I'd keep: the separate reserve that never got counted as part of the purchase, and writing the model down before I looked at the listing photos so I couldn't talk myself into a number.

Answer

2laurenkim53Passive

The separate water is doing quiet work in your numbers and it's the thing I'd tell a beginner to look for first in a small multifamily. When the building has one meter, the water bill is yours no matter who runs the shower, and in a two-bed with a family in it that can be 200 a month you never planned for. You have it on the tenants, so that whole line disappeared from your expenses.

On the reserve, I want to push a little. 14k is good and it survived one furnace. If the furnace in unit A had gone the same winter, plus the 22 day vacancy and the 1,340 turn, you'd be at roughly 9,600 out and your 200 a month wouldn't have refilled it. That's not a criticism of the deal, it's the reason two units is easier than one. Losing a tenant took half your income for 22 days instead of all of it.

The furnace decision reads right to me. You paid 350 more than the credit you refused, and in exchange you know the brand, the installer, and the warranty date instead of inheriting whatever the seller's cheapest bid would have been. I'd make that trade again.

One question. Did you keep the manager at 8 percent, or are you doing it yourself? Your 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.

First duplex closed after 18 months of planning. The boring parts carried it.

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