would you say this is a good deal for a newbie?
Investor · Des Moines, IA · Member since 2019 · 62 posts · 17 votes
| Price | 1% rule = | desired rent | ||
| 79,900 | 0.01 | 799 | ||
| price | 79,900 | |||
| closing co | 2000 | |||
| monhrent | 831.00 | |||
| total cost | 82,731 | |||
| Loans | ||||
| price | 79,900 | Down % | | ||
| downpay | 11985 | 15.00% | ||
| total loan | 67,915 | |||
| Money Needed = | 14,816 | |||
| MONTHLY ESPENSES | ||||
| PAYMENT | $324 | |||
| tax | $140 | |||
| insurance | 43 | |||
| vacansy | 41.55 | 5% | ||
| repairs | 41.55 | 5% | ||
| mangemnt | 91.41 | 11% | ||
| cap | 103.875 | 12.50% | ||
| TOTAL | $785 | |||
| EVALUATION | ||||
| MONTHLY INCOME = | 45.62 | |||
| YEARLY CASH FLOW= | 547.38 | |||
| CASH ON CASH = | 3.694519438 | % | ||
@Steve Smith
Hey Steve,
A duplex is not a commercial property. For multi family a commercial property is 5+units. Are you saying that you would rather have SFRs over an apartment complex? What’s the reasoning behind that? In my experience the numbers work better, it’s more scalable, it’s a safer investment and it’s easier to manage.
I do agree with you that they don’t build duplex’s, triplexes our fourplexes anymore so most of them were built in the 60s, older neighborhoods, and may have differed maintenance costs.
Biggest thing for your first deal is make sure you have underwritten and analyzed a fair amount of deals. Once you feel confident with the numbers make sure the property cash flows then buy it. Going to a rougher part of town because you can “get a better deal” doesn’t always pan out and it can cause more issues than you want.
Warren Buffett, “I would rather buy a great product at a fair price then buy a terrible product at a great price”
No. Everyone has their own criteria, but I would not be happy with this deal. You can find better. Negotiate the price down if you can.
@Erickson Sainval
I forgot to mention that it is a duplex
the unit am renting will pay for the mortgage tax and insurance and I would have a free place to live as I will live in the other unit, when I move out I can get $600 more for rent.
@Erickson Sainval
I forgot to mention that it is a duplex
the unit am renting will pay for the mortgage tax and insurance and I would have a free place to live as I will live in the other unit, when I move out I can get $600 more for rent.
If that is the case, it would be a good deal. As you would be living rent free and keeping that difference.
| PAYMENT | $324 | |||
| tax | $140 | |||
| insurance | 43 | |||
| vacansy | 41.55 | 5% | ||
| repairs | 41.55 | 5% | ||
| mangemnt | 91.41 | |||
| Total | $682 | |||
| Rent | 831 | |||
| $149 | $1,793.88 | 11985 | 14.97% | |
| $241 | $2,890.80 | 11985 | 24.12% |
@Steve Smith
All good points
Definitely agree that the right tenant will always make a deal with good numbers work
As for the cap I read Brendan turner book on rental property investing and he included it in his expenses so I though i should as well to be safe
As am a newbie I’ve no property management skills but if I do it myself I supposed I can always learn on the job, so good point here as well😁
As for it being a slum it’s not the worst neighborhood nor is it the best it is In the middle. I did notice major road/sidewalk construction around the area and am think if the government is investing in this area there’s probably a reason, but I would still consider buying it even without the construction.
Dieudonne,
If you're new, the absolute FIRST thing you need is to get educated. You need a course on real estate investing.
A duplex is NOT the best investment overall, however, it does produce better cash flow than a house. There's MANY reasons I don't like duplexes:
Generally, lower class tenants (and that's a deal killer)
You're dealing with a commerical property... harder to buy, sell, manage.
Your management and maintenance will TRIPLE over a SFH of the same value.
SFHs hold value better and you sell them to an end user, NOT and investor..... except typically new investor that are not skilled yet, try to buy duplexes.
Also, tenants talk to each other... last thing you want. But apartments are MUCH worse.
And, I've been there and made the mistakes. Still made a few buck but just not worth it.
My SFHs have out performed the duplexes over the years by 50% to double, and attract MUCH better tenants.
Just food for thought.
@Steve Smith
Hey Steve,
A duplex is not a commercial property. For multi family a commercial property is 5+units. Are you saying that you would rather have SFRs over an apartment complex? What’s the reasoning behind that? In my experience the numbers work better, it’s more scalable, it’s a safer investment and it’s easier to manage.
I do agree with you that they don’t build duplex’s, triplexes our fourplexes anymore so most of them were built in the 60s, older neighborhoods, and may have differed maintenance costs.
Biggest thing for your first deal is make sure you have underwritten and analyzed a fair amount of deals. Once you feel confident with the numbers make sure the property cash flows then buy it. Going to a rougher part of town because you can “get a better deal” doesn’t always pan out and it can cause more issues than you want.
Warren Buffett, “I would rather buy a great product at a fair price then buy a terrible product at a great price”
@Steve Smith
Steve,
Obviously there is always exceptions to the rule but commercial property is based on the income that it brings in and the property’s ability to pay back the loan. In terms of getting it financed I actually found it easier the biggest hurdle to overcome was the initial down payment, which I was able to get through doing a 1031 exchange. A residential property,4 units and under, are based on comps on the area. Which could be a positive or negative.
For managing I owned a duplex and had no issues self-managing it. When I moved to the commercial property I have gone with a management company so I don’t deal with that anymore and I make more money.
For appreciation the duplex I bought it for $300,000 and sold it 4.5yrs later for $465,000. When I moved it to the Phoenix area I bought a commercial multifamily and this year over covid I had multiple brokers calling me asking to sell it for $250,000 more then I bought it for.
That being said there is a ton of ways to make money in real estate and everybody has their own opinions but as long as the numbers work and you don’t speculate it’s a great business.
@Dieudonne T. you absolutely need to analyze this as if you were renting both units. Then it looks fine. You will live there, you have to live somewhere, so you have to weigh this against your other living options. Renting rooms or looking for something with more units or paying someone else rent. Personally for your situation this is probably a good choice. You make a little money, you don't have to live with someone in your personal space, and you get started in your real estate goals.
To everyone who says duplexes are not good there are others who like them. However in your situation you are picking a a starting point, that doesn't have to be what you do in the future and as a starting point its good. I do caution that you look at the area to be sure its a decent area if you haven't already before you buy. Crime rate, are surrounding houses well kept etc. To me it is really cheap but our area is pricey compared to your part of the country
I see the breakdown of your potential investment. Im just confused as to what does cash needed mean. Is this the money you need to provide the down payment and other things in order to get the loan???
@Dieudonne T.. Congrats on finding a house hack that has potential!! I'm also from the midwest and understand that you can find some gems at lower price points that others might to have access to in their markets. Having a free place to live is a great way to get started with wealth generation. The hardest part for most people getting started is to actually pull the trigger and jump in. In all reality, don't plan on making any money on your 1st deal... if you do, it's a bonus. Good luck and update us on your decision!
I see the breakdown of your potential investment. Im just confused as to what does cash needed mean. Is this the money you need to provide the down payment and other things in order to get the loan???
I think OP is using deal check for his analysis. Deal check has a Cash Needed section of the report which is your downpayment, closing/purchase costs, and rehab costs (if needed).
@Bernice Monroe
Yes