If I told you about an investment opportunity(duplex) where you could invest an initial $15,000 and earn $9900 per year (or more as time goes by) every year after that, would you do it? Of course you would! Or at least I would hope you would…
Today I’m sharing my annual review of a duplex I bought 8 years ago because I believe that real-life stories offer the best lessons and since this is a great story of how investing in real estate can seriously change your life (it has for us!) I’m excited to share.
If you want to learn more about the different creative ways we acquired our properties read this.
This particular property is located in Arlington, WA (roughly 50 minutes North of Seattle), and is a single-story duplex built in 1978 with 2 beds and 1 bath in each unit, and the units are separated by one car garages.
This is my FAVORITE style of duplex, by the way, my portfolio is basically all this style.
At the time my husband and I were not married, and I owned another single-family rental, co-owned a duplex with my parents and he owned a single-family home that we would convert to a rental once we moved in here.
Using an FHA loan (which at the time was 3% down) we closed on December 29th, 2009, and moved in after the renovations were completed at the end of January.
Final Acquisition Numbers:
Purchase Price: $196,000
Renovation Expense: $14,000
Down Payment + Closing Costs: $1200*
Total Investment: $15,200
* I decided in 2009 that I was going to really start focusing on investing in real estate, so I took an online real estate course and earned my real estate license to be able to use the commissions earned toward my down payments. This also allowed me to qualify for the real estate professional’s unlimited deductions against my other income. In the case of this property, I received a $4900 commission and had the seller pay my closing costs, bringing my total out of pocket closing costs to $1200.
Here’s the full year break down on this property for 2017 to give you an idea of what the actual 8th-year income looks like
Maintenance & Repairs: $249
Property Management Fees: $0
Mortgage Payments (PITI): $14,136
Rental Income: $25,485
$9,949 net cash flow
In case you didn’t know, my husband and I self manage all of our rentals, except for our Indianapolis duplex. So this duplex has been self-managed by us since day one.
The tenants in this property have been there for a few years. The tenant in Unit B has lived there since 2011 (!!!) and the tenants in Unit A have been there since 2014.
In 2017 I did do a rental rate increase on both units, of $200 ($100 for each unit) and this really improved our cash flow position and did not result in anyone moving out.
It’s always my goal to improve upon the rental income while trying to avoid a move-out, which could end up costing more in the long run.
We are probably $100 per unit under fair market rent, and I may do another $50 per unit per month increase this year.
MAINTENANCE & REPAIRS
As you can see, $249 in expenses for all of 2017 is very low.
We had a $100 septic repair bill for grease build up in February, and $149 repair of a wall heater that wouldn’t shut off and that was it, for the entire year!
While the repair costs were extremely low in 2017 (and actually for the past several years) we are getting close to needing a roof replacement on this property.
I’ve budgeted about $5000 for the roof repair on this property, which we’ll probably have done this summer.
We do pay for the water bill on this property, and it ranges between $75 – $95 per month.
This property is also on septic, so while we do not have a monthly bill for that, I do budget for septic pumping every 3 years.
Property values have skyrocketed in this area over the past few years, and so has the value of this property. If I were to sell it today, it would easily sell for $350,000.
We do still have a loan on the property, with a balance of roughly $173,000, which means we have an LTV (loan to value) of 50% and $177,000 in equity.
Another point to make is that our LTV allows us to secure a second mortgage in the form of a HELOC (home equity line of credit) at 70% of the value less the balance of the first mortgage. So in using that calculation below, we have $72,000 of equity that we could get a loan on.
$350,000 (current value)
x .70 (maximum allowed LTV ratio for HELOC’s on investment properties)
– minus $173,000 (mortgage balance)
= $72,000 available equity for a new HELOC
I may talk to my banker about a HELOC on this one, we already have two HELOC’s of $210,000 hanging out waiting for a good deal to come around.
AMOUNT OF TIME SPENT ON THIS INVESTMENT
In 2017 I’d bet we spent 7 hours total on this property, which was mostly for the two small repairs.
All bills are on auto-pay.
The tenants make their rental payments like clockwork on the 1st and 5th (longer tenant has been grandfathered into when I use to allow tenants to pay by the 5th, now everyone pays on the 1st and it late on the 2nd) through apartments.com.
The water bill is on auto-pay using our Alaska Airlines Visa card, which allows us to travel for free.
OVERALL INVESTMENT THOUGHTS
This property has proved to be an excellent investment and hits all of my current criteria for rate of return, equity, cash flow, property type (single story), and amount of time spent.
Another added bonus is that this property has a larger lot size (.39 acres) and at a point where sewer becomes available, there may be a possibility to build additional units here.
So, we’re hanging on to this one for the long term!