What's wrong with this?

Question

I'm from Buffalo, NY, and prior to moving to the metro DC area I purchased a 2 unit property in Kenmore (suburb of Buffalo).  The cost was 80k and after paying my mortgage payment I pocket approx $200 a month.  It's not BIG money but I am having a mortgage paid off for me and still bringing in a little extra.  Right now I'm looking to purchase another 2 unit in the same neighborhood.  Same amount of money, pretty much the same deal.  Hopefully I'll be moving back to the Buffalo area soon as well.  My question is, what's wrong with this?  I have posted this in other areas when looking for advice on financing etc..and I seem to get negative responses to what I'm doing.  What do you think?

Dane Whales · Answer

Give us more details so we can have some analysis and help you out with your problem...

Christian Malesic · Answer

The basic concept is sound and is what we do.

I concur with Wheatie, in that, it is hard to give you further analysis without further numbers.

In general - good.

Specifically - can't answer.

Jon Holdman · Answer

Hard to analyze without more details.  Can you post specific numbers?

Based on the $80K price, I'm assuming 10% down and a P&I payment of $479.  Add in taxes and I'm guessing PITI about $600, and rent of $800.  The problem is there are many other expense besides T&I.  If one of your units is vacant for a month, you lose $400 in rent.  That's 4.2% of your annual gross scheduled income.  Then, you probably have to do some work to the place.  Maybe covered by the security deposit, maybe not.  At some point, you'll have some major work like a heater, roof, or sewer line.  If you have enough of these (or, maybe just the one you already have) you'll have to do an eviction.  That will cost you several hundred dollars, and (depending on NY law) several months rent.

You're paying $80K for $800 in rent.  If you consider money is 7% these days, that only leaves you 5% of the $80K each year to pay all the expenses and for profit.  You just need to pay less.  Nothing really wrong with what you're doing, other than paying too much.