Duplex Chick

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One of the reasons I specialize in helping people buy and sell duplexes is that each and every one, whether it’s strictly an investment property or a place for the owner to live, is that it is both an intellectual and emotional endeavor.

On the one hand, for both investors and owner occupants, the financial analysis is crucial. If you’re an investor, the property needs to meet your financial goals for a return.

If you’re an owner occupant, the numbers also need to work. Most buyers have a very specific idea of how much they’re willing to contribute in “rent” toward their share of the monthly mortgage payment.

But for both an investor and an owner occupant, the return a property gives your heart can be just as important.

There are times when owning an income property sucks. Period. And it’s times like that when a piece of woodwork, a built-in, a view, can be the inspiration to muddle through.

Make sure your duplex is a good investment. Of course. But it never hurts if it makes your heart sing too.

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Every day anywhere from 10 to 20 duplexes either are newly listed on the Twin Cities MLS, or have their asking prices reduced.

How can you tell which ones are good investments?

I suppose you could stop and do the math on each of them.  Of course, that would take a lot of time.

Is there a shortcut?

Over time, seasoned real estate investors and Realtors use to learn two tools to quickly assess whether or not a property is likely to be a good investment: the gross rent multiplier and something called a cap rate.

While the cap rate is a useful tool for larger commercial properties, I haven’t found it to be as effective a measure on smaller multi-family units. Nonetheless, I’ll discuss the cap rate later in the week.

The gross rent multiplier is a very simple math problem. To arrive at it, just take the asking price for a property and divide it by the amount of rent a building generates annually.

For instance, if a duplex is priced at $240,000, and the MLS indicates it is receiving $24,000 in rent for the year, 240,000/24,000 = 10. The gross rent multiplier is 10.

How do you use this number?

Generally speaking, the lower the gross rent multiplier number is, the more likely the duplex is to cash flow.

So if a property has a low GRM, do I recommend a client buy it?

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