Should I Buy This Duplex?

I recently found myself in an advisory roll for a couple individuals, Eric & Jolene. Complete strangers to me but Eric & Jolene reached out for some advice on purchasing their first duplex, happy to provide.  To my knowledge these newbs at real estate investing don’t know one another as one lives in North Carolina, the other in Minnesota, but had very similar, scary similar, scenarios.

Eric (NC) & Jolene (MN) were analyzing their own duplex with the idea of living in one side while renting out the other side. They both wanted to cash flow $100-200 per unit but neither could calculate their numbers to work and fit their investment criteria, but why?

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Each presented their case. “Are my expenses, utilities or taxes too high? Have I over estimated my vacancy expense?” Typically I find utilities and taxes as two expense categories that really drive down cash flow, so they both were on the right track. They have done some homework. Property taxes, not much anyone can do about them. Possibly something you can do about utilities via bill back to the tenants but you have to be sure your competition does this as well and/or how that will affect your rental income.

Pro Tip: If a property is master metered, the most economical way to bill back utilities to tenants is through RUBS – ratio utility billing system. Be sure your state statutes support RUBS and it will save you thousands on sub-metering a master metered property. 

Next case point, both Eric & Jolene presented, “Rent is not up to market rates on Unit B. There is a long term tenant of 10+ yrs that I know I can go up on but even when I do that, I still don’t hit my $100-200/unit criteria.”

My Advice: Your goals are wrong.

Both Eric and Jolene were analyzing their properties as if they were living in them, meaning they were missing out on revenue from one unit, meaning 50% economical vacancy…all the time. This wouldn’t allow them to hit their investing criteria but if they wanted to live in one side of a duplex and rent out the other, they have to look at it a different way.

Here’s what I told them:

You have to make a decision on whether this property is the right property for you. You have to decide if you want to use it as your way of starting to invest in real estate, not that it will hit your investing criteria initially but you know it will once you move out. You have to decide if your goal for this particular property is not to initially cash flow to your criteria, but allow you to dive into real estate investing and eventually steam roll you into additional units.

Both Eric & Jolene currently owned homes, paying $1200-$800/month respectively in mortgage payments. To gain perspective, through our conversation they realized that their goal, as least for this property, was to cut their housing expenses down to $200/month. A reduced mortgage payment plus the second unit’s rental income brought their housing expense down by $1000-$600, respectively. The delta difference, that $1000-$600, they would then start saving for a down payment on their next rental property. By doing this, in less than 24-36 months, both will have enough money saved for a down payment on their next rental property.

Setting goals is highly important but setting the right goals is important-er!! I did that one for my 9th grade english teacher 🙂

In my 10 Step Guide to Buying and Holding a Small Multi-Family Rental Property we discuss this very thing. Step 1 is completely dedicated to defining your goals and more importantly, your purpose for real estate investing. Once you’ve truly discovered what those two are all about, real estate investing becomes clearer. In Step 2 we’ll create your investing criteria that’ll act as your guard rails when analyzing opportunities.

Have a question? I’m happy to help. Reach out on this form.

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Purchasing Our First Duplex

Up until this point we’ve only invested in single family homes, but as we keep doing our research, small multi-family (MFRs) are the way to go.


purchasing first duplex real estate investing pensacola fl

We looked in the Pensacola area for 12+ months and made offers on 3 other MFRs before we found one that fits our investing criteria. I was so anxious to get in a MFR at times I found myself compromising on our #s – trying to convince myself the #s were ok, they’ll improve later.  They were not ok and we’re not doing this to be just ok. Compromising on the #s is a no-no and this has been a great discipline exercise for me and great display of patience (which I rarely have – I must be getting older/wiser). As we stuck to our investing criteria, we finally found one. And I’m not just talking about a good deal, I’m talking about a great deal; at least it looks like that on paper :).

Excitement. What makes this such a great deal?

  1. Cash Flow. This Gulf Breeze duplex is expected to cash flow way better than our investment criteria require. I couldn’t wait to close on it and have the revenue coming in.
  2. Expanding: Our portfolio was expanding and so was our net worth.
  3. Subdivide Lot = Extra Cash Flow. This duplex is on a lot big enough to be sub-divided (which we will eventually do). This area of Gulf Breeze is zoned for many uses, so very little investment on the sub-divided property should yield a few extra hundred dollars more in monthly cash-flow. Another option is to sell off the subdivided lot, lowering our cost point on the duplex.

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Struggles. As-in, things that made me question what we’re doing.

  1. Patient to find a good great deal.  Now that we’ve found a great deal, this will be easier for me to repeat the next time.
  2. Banks/Mortgage Brokers. This probably goes without saying but I’d rather someone dig sand out from underneath my toe nails with a spoon vs. working with Banks/Mortgage Lenders . We have a great credit score, we have the down payment, W2s, etc, but I just felt like I was chasing them  –take my business please!!! Can’t quiet understand why they weren’t chasing me.
  3. Postponed Closing. Even though I finally caught a lender by the tail and started the process of ensuring financing with them a few days after we went under contract, it took 3+ months for them to pull everything together. The Gulf Breeze seller wanted to pull out, but thanks to my realtor for calming the seller down and bringing him back in. This was a new relationship with this bank and I’m hoping this doesn’t happen with our next acquisition. If it does, at least I’ll be used to it – they have REALLY good rates.
  4. Choosing a property management company. Gulf Breeze is a bit of a drive and with our portfolio expanding, I thought its best to bring on some extra help. I called 4 different property management companies (top hits from Googling ‘Pensacola Property Management’) and went with the only one that called me back. Luckily, they have impressed us thus far with their availability and response times.
Verification Process. There are a few things we wanted to verify about the duplex and made our contract contingent upon. The previous owner provided all of this. They are:
  1. Verified Rent Roll. We wanted to make sure the tenants were paying at least the amount of rent we used in our calculations to underwrite the deal. They were actually paying a little more.
  2. Current Tenant Rental Agreements. We also wanted to ensure what the current rental agreements look like as we would inherit those (at least until they expire) with the purchase. We also wanted to be aware of any security deposits the tenants paid that will need to be transferred to us at closing.
  3. Maintenance History of Each Unit. Just another verification step we took to ensure we weren’t acquiring a property that had a bunch of deferred maintenance.

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As the months roll on and this property produces like expected, I’m certain our Excitements will make me easily forget our Struggles. Like a new parent who struggles to get through the first 6 months, I’m hoping we quickly forget the stress and zombie feeling of being new parents.
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