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# Reader Question: “Should I Buy This Triplex?” (A Real Life Case Study)

Brandon Turner

Today I received a private message from a BiggerPockets colleague (we’ll call him Jake) that asked a very good question about a potential property he was looking at. Rather than try to summarize, let me just show you the message:

I wrote out a rather lengthy response and then decided this would make a really good discussion here on the blog. So follow along with me as I analyze this potential property and show you how I look at something like this.

## The Potential Rental Property Deal

Allow me to quickly sum up everything in the above question, just so we are all on the same page.

• Jake owns a home already, with a mortgage payment of \$734 per month. His home would rent for \$900.
• Jake is considering a Triplex that just came on the market in a good area
• The triplex consists of a main house with two basement apartments.
• The current asking price of the property is \$250,000, but Jake is hoping to pay \$210,000.
•  Jake would move to the triplex, live in the main house, and rent his former house and the basement apartments.

So Jake’s wanted to know my thoughts. Would I do it?

Honestly, at first, I thought “Seems decent.”

HOWEVER.

Then I dug into the numbers.

(Watch the Video below, or simply skip the video and read the text explanation below it!)

## The Analysis

When investing in real estate, you can’t rely on just gut feeling. This is a math game, and it has to begin there. After a few minutes of looking at the numbers, I could quickly see this wasn’t looking pretty.

To make things easy, I headed to the Rental Property Calculator here on BiggerPockets. I use this thing every single day to analyze potential deals, and it hasn’t let me down yet.

Here’s what I discovered:

A few things to point out:

• Whenever analyzing a live-in multifamily property, I always run the numbers AS IF I were renting all the units out. This way, you can compare apples to apples. Also, an investor isn’t gonna live here forever, and it WILL become a rental soon enough.
• Potential income, I estimated, would be around \$2100 per month if all 3 units were rented.
• Potential expenses, I estimated, would be around \$2332 per month.

This shows a potential negative monthly cash flow of \$232 per month. This should be enough to stop most investors, but just for the heck of it, let’s explore the issue a little deeper. In the following screenshot, I ran the numbers as if the main house unit was being lived in by Jake, so we could see what it would actually cost to live in the property:

As you can see, if Jake were to live in the property, he could expect -\$872 per month. What this means is that it would cost Jake roughly \$872 per month to live in this home (plus his own utility payments.)

Is this a good idea?

Well, let’s talk more about that.

## When Would This Purchase Be a Good Idea?

No one wants to lose \$872 per month in cash flow. That’s bad… right?

I think this depends on what Jake is currently paying in his real estate market to live. If the average home would cost him \$2,500 per month to live … well, \$872 is a whole lot less than \$2,500 so it might not be such a bad idea.

It depends on Jake’s situation.

A second reason it may be advantageous to purchase this triplex is for appreciation. After all, check out the graph below, which also came from the Rental Property Calculator, that shows what 2% per year appreciation would look like over time.

The green line represents how much equity Jake would have (assuming he starts with \$50,000 in equity because he got his \$200,000 offer accepted) over \$200,000 in equity by year 15.

Now, personally, appreciation is NOT my game. I don’t invest for appreciation, and don’t generally recommend new investors do it either. However, it is a strategy that has worked for many people in the past so I need to at least bring it up.

To sum up the advantages: If Jake needs to live somewhere anyways, and he can live in this home for significantly cheaper than living elsewhere, and he can take advantage of a rising real estate market with minimal cost out of pocket (and he can learn how to be a landlord while doing it) it’s not necessarily a terrible decision.

## Conclusion

So what should Jake do?

What would YOU do?

I just hung up the phone with my friend Ben Leybovich, and we spent a while talking about “perspective” in real estate. The mechanics are generally obvious and fairly black & white. However, it’s the “perspective” that is often difficult to grasp. This is why I believe discussions like this are so important.

Just like the post I wrote last Friday, titled “Let’s Get One Thing Straight About “Waldo…” (A Follow Up to my Debate with Ben),” I firmly believe the best way for a new investor to become a Pro is through opening your mind, and your mouth, in conversations like this.

So do me a favor and open yours below by commenting and letting me know your opinion. Should Jake buy the property? Why or why not?