I bought a duplex in Fayetteville from a man who wanted to get out of property management. When he first approached me, I didn’t have much cash set aside, and I couldn’t afford his asking price of $200,000. I was honest with him about my financial ability, and I told him I could pay $176,000 at most. He graciously agreed to sell the duplex to me, as long as I kept both tenants at the rate he gave them, which was $750 a side. This was an undervalued rate (the rest of the neighborhood was renting for $1,000 or more per unit), but I agreed to the deal and honored his leases. Below is more of the duplex’s financial breakdown at the time we bought it:
Purchase Price: $176,000
Down Payment: $36,000 (20% of purchase price)
Amount Borrowed: $140,000
Monthly Rent (Per Side): $750
Monthly Payment (Per Side): $462 (62% of the gross rent)
Monthly Free Cash Flow (Per Side): $130
While I was only making $130 per side a month ($150 is usually a reasonable minimum), both tenants were incredibly responsible, clean, and fun to work with. One of the tenants ended up graduating and moving out early, so we raised his side’s rent to $900 a month, upgrading our free cash flow to $280. Once the other tenant’s lease expired, we talked to her and bumped her rent to $850.
Eventually, both sides started producing close to $300 in free cash flow, but I had to be patient and honor the terms of the deal. I wouldn’t say that I bought the duplex under bad circumstances, but I would say that the circumstances were less than ideal—which the previous owner acknowledged when he lowered his asking price. The duplex is one of our first properties, and while we’ve had to perform a number of repairs on it over the years, it’s been a great rental property.