House hacking a $675k duplex in Dallas

Do the numbers pencil out?

Happy Thursday! Today, we're going to run the numbers on a duplex in the heart of Dallas, Texas. Let's crunch the numbers and see if it’s a viable investment!

Here’s the duplex we’re looking at - it’s currently on the market for $675k and has two 2bd/1ba units.

Duplex in Dallas

This duplex, built in 1924, is located in the vibrant Oak Lawn neighborhood of Dallas, an area celebrated for its energetic atmosphere and rich historical background. The units are in good condition, albeit a little bit dated. The refrigerators, washers, and dryers don’t come with the property, so we’ll have to set some money aside to make the units livable. We’ll assume that we purchase the property for the asking price of $675k, and we’ll allocate an additional $30k for updating the property and purchasing appliances.

We’re going to make the following assumptions:

• 20% down with a 30-year fixed mortgage at 7% interest rate

• 1.72% annual property tax rate (based on Dallas’ current rates)

• $236/mo home insurance

• 5% reserve for vacancy

• 10% reserve for capex and repairs

• 2% annual rent and expense increase

We’re going to rent out one whole unit and one bedroom in the unit we’re living in, since that’s the only way we can possibly make the numbers work here. Rents for comparable 2bd/1ba units in the area are around $2,000-$2,300/mo. We’ll go with the bull case and assume we get $2,300/mo for the unit. Comparable rents for single bedrooms is around $1,000/mo, bringing our total monthly rent roll to $3,300/mo.

Plugging these numbers into our house hacking calculator (reply to this email and I’ll send you the link!), we get the results below.

Deal Analysis

It doesn’t look like our investment is panning out. Our monthly outlay for mortgage + insurance + property tax comes out to $4,797, but our monthly rental income is only $3,300. That means we’re losing nearly $1,500/mo before accounting for capex, maintenance, or vacancy.

We’re setting aside $5,940 ($495/mo) in the first year for capex, maintenance, and vacancy. Given the property turns a century old this year, we might be underestimating the magnitude of this line item. After taking this expense into account we lose $23,900 in our first year living in the property. We accrue $5,485 in equity, so our net loss comes out to $18,415 ($1,535/mo).

Losing more than $1,500/mo while living in a shared unit isn’t great, especially after putting down $165k ($135k down payment + $30k reno). Given the layout, location, and age of the property, it doesn’t seem particularly well-suited for short- or medium-term rentals. Even if you went down that route, it would be hard to fill a $1,500 hole every single month, not including the time that you’d have to invest.

Would I purchase this property? Not a chance. The property is 100 years old and you’re losing more than $1,500/mo while living in it. The odds of a high-ticket repair in the next couple years are fairly high, and I wouldn’t want to be the one paying that bill.

Thanks for reading! Catch you in the next edition!