Alright, I found another duplex that has piqued my interest! Like the last duplex I looked at, I have no idea whether it’s a good investment or not. Let’s see!
Buy: $130,000 (but it’s listed at $160,000)
5% closing: $6,500
Reno: $23,000 (listing says it needs new roof)
Total house cost: $159,500
Monthly gross income
Big unit: $800 + utilities
Small unit: $760 + utilities
Total monthly income: $1,560 (Annual gross income: $18,720)
Vaccancy @ 3.5%: $55 (vacancies published by CMHC)
CapEx: $250 (numbers taken from this article)
Property manager: $140
Property taxes: $170
Total monthly expenses: $1075 (Annual expenses: $12,900)
Total monthly net income: $485 (Annual / NOI: $5,820)
Net operating income (NOI): $5,820
Cap rate: NOI/$159,500 = 3.6%
Good investment or not?
Well, not really. This property yields a lower cap rate than the side by side duplex, and it needs some repairs like roof work and general TLC (that’s how the listing describes it!). Likely my $23K reno estimate is on the low side or maybe even totally way too low. Need to research the real costs of renos because I’ve never been a home owner so never had to worry about this stuff! It’s kinda nice renting, actually… 😕
The reason this listing piques my interest is because it’s located within walking distance to the downtown of a very popular tourist area. My parents visit this city with my Grandma (and Aunts and Uncles) literally twice a month. They never stay overnight, but many people do. Unlike the first duplex I looked at, this location has lots of potential for Airbnb!
Tenants paying too little
These tenants are paying far below market rent. It seems to be the trend for most of the tenanted multi-family properties I see listed for sale on the MLS. This property has a 2-bedroom (big unit) and 1-bedroom (small unit), rented at $800 and $760 respectively. From my research, a 2-bedroom in this area should go for $1,200 and a 1-bedroom for $1,000. That’s a massive difference!!! I’m even estimating low because I’m taking into account that the property is not in top shape (according to the listing + see pics below).
What does it look like to charge market rent?
If I could collect $1,200 and $1,000 for rents, that would be $2,200 gross monthly. Subtract expenses and that’s $1,125 net cash per month! A significant difference from earning only $485 while charging below market rent. We can live off of $1,125, though we’d need to pay rent somewhere else.
Living in it ourselves – cash flow negative 🙁
There are 2 units in this duplex that I call big and small. We could live in one and rent out the other. Sometimes it’s confusing choosing which one is better to live in, because while it’s nice to have a spare room for guests, we also do well with no spare room and our guests have never complained about sleeping on the couch.
What will sway me one way or the other are the cold hard numbers. So..
- If we live in the small unit we would be cash flow negative by $25!
- If we live in the big unit we would be cash flow negative by $175!
So living in the smaller unit seems like the winner, and I would choose it if we were working full-time jobs. Paying $25 for rent (or even $175) is fine, but I feel like we can do better.
Hosting via Airbnb
If we pay $175 to ‘rent’ the bigger unit, I would definitely list one room on Airbnb. According to AirDNA, the occupancy rate for this tourist city is 80% with an average daily rate of $186/night! I know I wouldn’t be able to charge $186/night for just a private room, but I think it wouldn’t be hard to earn back that $175 with a few Airbnb stays, and probably even earn more to put us into positive cash flow! This would be great because we could use that extra room for our personal guests too.
Or, we could forgo renting to tenants altogether and just being Airbnb hosts. This would mean we’re running an active hospitality business rather than being landlords, but we suspect it suits us more since we have travelled a lot and we enjoy talking to fellow travellers.
If we did choose to become Airbnb hosts only, I would still prefer to live in the bigger unit and have 2 Airbnb listings: One listing for the room in our home, and one listing for the entire smaller unit. This should bring in more money than traditional rents, but will also be more work. Though we aren’t shy of putting in some hard work!
Additional pictures of the property