This is a deal breakdown of a duplex in the Bishop Arts neighborhood of Dallas. Bishop Arts is an up-and-coming neighborhood seeing heavy gentrification. This property has the benefit of location. Situated directly adjacent to the neighborhoods' major retail corridor, Davis Street.

This deal works out nicely for an owner-occupied FHA loan with plans to refinance after renovations are complete.

I'll talk a bit more in depth on FHA loans in another post but for now, on to the deal. 

The Deal

• Duplex (over-under)
• 3bd/2ba and 3bd/1ba
• Each units 1,500 SF
• Ready-made ground floor unit
• 2nd floor unit needs work
• Being sold vacant - current owner occupies the entire property
• Listing price - $389,000
• Needs roughly $50,000 of capex

Income & Expenses. After renovations, I estimate that these units can achieve approx. $4,000 per month, or $2,000 each. Operating expenses, including taxes, for a property like this is typically around 30% of gross income. Totaling $1,200 per month. Thus, the property profits $2,800 per month before debt.  

Debt. Let’s assume we pay full listing price and put 5% down via FHA loan @ 4% interest. Our monthly debt obligation comes out at $1,764 per month. Now tack this onto your NOI (profit) and we are cash flowing $1,036 per month.

However.

Since this is an FHA deal the owner's obligated to occupy the property for at least 1 year. In this situation you would occupy the non-renovated 2nd floor unit and rent out the ready-made ground floor unit. This will affect the GOI. Let’s re-evaluate. We know;

• Operating expenses run us $1,200 per month
• Debt costs $1,764 per month
• We can rent the downstairs unit for $2,000 per month
• Thus, we are essentially paying $964 per month to live here.
• 2,000 - (1,200+1,764) = -964

At first glance it looks like this deal is operating at a deficit. Yet, a 3bd/1ba in Bishop Arts would cost you approx. $2,000 per month. So, in effect you are actually PROFITING $1,036 per month.

In addition to profiting on living expenses. You are the proud owner of a tax-shielded, appreciating asset in a neighborhood that is averaging 2-3% rent growth year-over-year.

You can spend this year renovating the properties exterior and the unit you reside.

Exit. Now that you are saving money on living expenses. You can use remaining capital to renovate the building, forcing appreciation. Once renovated, refinance, pull out your equity, move out, and rent your old unit. You should now have most of your initial investment out of the deal. Leaving you with the cash in hand and a property that will cash flow as long as you decide to hold. All risk is essentially eliminated. You can use the equity to buy another income producing property via 1031 exchange. Rinse and Repeat. Do this a handful of times and you will have created unimaginable wealth.

These are the kinds of deals with tons of upside and limited downside. Worst case scenario you reduce your living expenses. Best case you are the proud owner of a cash flowing machine as well as all the money you started with.

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