To buy the duplex or to not??

Question

Help! My husband and I have an opportunity to buy a completely flipped duplex in a cute, popular suburban downtown area. Originally listed at $310,000 and now down to $295,000. Bottom unit is 2/1 and upper is 1/1. Bottom rents for $1400 a month including an attached garage space. Upper unit is empty but listed at $1100 a month. We currently own two other single family rentals and want to make our move over to the duplex world. Our only hesitation is that we’d be pretty cash poor after putting the 25% down required for investment properties. We did the math with very conservative numbers and came to a cash flow of about $250 a month with the thought that’d actually be quite a bit more than that. The money scares me. My husband is less apprehensive but still just can’t decide what to do. If we do this, that means we are stuck for a while and can’t add to our portfolio. If we don’t, then we portentously miss out on a good buy. What do we do?!

Kevin Sobilo · Answer

@Colleen Berquist. You're cash on cash return looks VERY low. What makes this deal look good to you? Are you wanting to buy it more for the depreciation on your taxes?

Kevin Sobilo · Answer

@Colleen Berquist, in my area I can buy a duplex for $50-75k and get $300-600 positive cash-flow.

I certainly understand that there are many markets like yours where positive cash-flow is more scarce. One concern I would have is the durability of those rents. If you are renting for top dollar will those rents hold up in a recession?

Fred Shatzoff · Answer

@Colleen Berquist send me a pm

Colleen Berquist · Answer

@Kevin Sobilo I should add that we’re down to $286,000 seller pays closing. But you’re right, it is very low and that’s where we’re struggling. That’s also a very conservative number using $800 as the actual rent for the vacant unit and allowing %10 going towards repair, which being a flip and everything new, seems quite high. We’d be buying it as a buy and hold.

Colleen Berquist · Answer

@Fred Shatzoff That’s interesting. The lender that we’ve worked with in the past has consistently told us we need to put 25% down which is what we ended up doing with the second SFH. How would you go about getting an 80% ltv loan and do the rates differ much? Thank you or your help by the way.

Fred Shatzoff · Answer

@Colleen Berquist you may be able to get a mortgage for 80% ltv.

Colleen Berquist · Answer

@Fred Shatzoff I should add that we’re pretty sure we have an agreement with the seller at $286,000 seller pays closing.

Colleen Berquist · Answer

@Fred Shatzoff we do have mortgages on the other places. First house mortgage is $1050 a month with $1650 coming in for rent and the second mortgage is $1180 with rent at $1790 a month.  Both are low maintenance and have pretty good cash flow.

Fred Shatzoff · Answer

@Colleen Berquist Duplexes are the way to go.  The numbers look like they might work.  Do you have mortgages on the single families?

To buy the duplex or to not??

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