Happy Thursday! Today we’re running the numbers on a duplex for sale in New Orleans, Louisiana, a city known for its rich history and tantalizing cuisine. Let’s see if we can make the numbers work!
Here’s the duplex we’re looking at - it’s currently listed for $525k and has a 2bd/2ba unit and a 2bd/1ba unit.
The home is located in the Bywater, a vibrant, up-and-coming neighborhood east of the French Quarter that’s known for its hipster culture. The house itself is fairly old, but looking at the pictures we can see that the interior was touched up relatively recently. We’ll assume that we purchase the property for its asking price. We won’t allocate any money upfront for repairs and renovations, but since the home is old, we’ll definitely keep a budget for capex and repairs.
We’re going to make the following assumptions:
20% down with a 30-year fixed mortgage at 7.5% interest rate
0.79% annual property tax rate (based on New Orleans’ current rates)
$190/mo home insurance
10% reserve for capex and repairs
5% vacancy rate
2% annual rent and expense increase
Since this property is a duplex, we’ll live in one unit and rent out the other. Additionally, since both units are 2-bedrooms, we’ll rent out the extra bedroom in our unit for additional income.
According to the listing, one side of the property is currently rented for $1,750/mo - it’s unclear whether that’s the 1-bath or 2-bath unit so we’ll assume it’s the 2-bath to be conservative. Based on rooms for rent in the surrounding area, it looks like we’ll be able to rent out the extra room in our 2-bed/1-bath unit for $800. That brings our total monthly rental income to $2,550.
Plugging these numbers into our house hacking calculator (reply to this email and I’ll send you the link!), we get the results below.
Our monthly outlay for mortgage + insurance + property tax comes out to $3,563 and we’re bringing in $2,550 in monthly rental income. Subtracting the two, we’re losing $1,013/mo in our first year living in the property ($12,152 for the whole year) - ouch!
We’re also putting aside $4,590 ($383/mo) in the first year for capex, maintenance, and vacancy. Rolling that into our calculations, our year 1 out-of-pocket living cost comes out to $16,742. We accrue $3,872 in home equity in our first year, so the net living cost comes to $12,870 or $1,073/mo.
Having to shell out more than $1,000/mo to live in a shared unit in a duplex that you’ve already put 20% down on isn’t great. Thinking through the opportunities that come to mind to increase our monthly income, the only one that seems viable is Airbnb. New Orleans has fairly strict Airbnb regulations but does allow property owners who live on their property to list on Airbnb.
We’ll use data.rabbu.com to estimate our potential Airbnb revenue - entering the property’s address, it looks like we’re estimated to make $22,641/yr ($1,887/mo). That’s only ~$100/mo more than what we’re making as a long-term rental, after expenses we’re probably making less with Airbnb. Seems like Airbnb is off the table. Here are the numbers if you want to dive in a bit more:
Would I purchase this property? Probably not. The high out-of-pocket expense makes it unviable as a house hack and there’s not much room for upside. The high frequency of natural disasters (hurricanes) is also cause for concern. New Orleans is a great city, but I’d need a home-run deal to be convinced to purchase a property there given the long-term economic and environmental concerns.
Thanks for reading until the end - see you next week!