I get phone calls on a weekly basis from potential clients interested in buying duplexes. Many of these potential clients have the thought that they will buy a duplex and rent out one side while living in the other. Not a bad strategy. However, many of these people have the idea that the one rental side will cover the payment and they will be living for free. Great idea, but usually not practical.
Good return on these units, and what I use to pass the viability test is about 1% of purchase price per month. I currently have a duplex on Westcreek available. It's an awesome 2 bedroom/1.5 bath duplex with a fireplace and a nice sized yard. It is listed at $129,900. Monthly rental on one side is $650 and the other side (which has been occupied for the past 10 years with this tenant) is a more modest $550. Total income is $1200/month. This passes my test because the one tenant pays lower rent because he has lived there so long. Say he decides to move out and you purchase the duplex and put 10% down, or $12,900. You are financing $117K for 30 years. We'll say the interest rate is 6.5%. Your interest for the first year would be $7605 approximately. Insurance on the building will be likely to run you around $600 per year. Taxes will be approximately $3000 for the year. Your costs, without maintenance, shared utilities and principal added in are approximately $11,200. Your income is $7800. This leaves a shortfall of $3400 or a little less than $300 a month.
Older duplexes like this can have some up potential. Looking at several of the newer duplexes the numbers paint a much worse picture. A 230K duplex (new, or like new, 3 bed/2 bath) will rent out for approximately $1000 per side. Obviously you can't carry a 207K note for $1000 a month or even expect that you would have to pay less than the $1000 that the other side is paying.
The upside to this is that the duplexes will have increased value after your stay most likely, but don't expect a free ride...
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