I feel like I made a mistake

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I feel like I made a mistake

Gerardo Hernandez
Member since 2021 · 34 posts · 44 votes

Hello everyone, 

I have to say I am freaking out!! I got a new job over an hour away and I have been driving for over a month and I hate it! I have been trying to find a duplex to house hack but there isn't much in the market at the moment. Well yesterday I put an offer on a new duplex that came in the market. The asking price was 215k and I offered 190k to start the negotiations. My real estate agent came back and said someone else had an offer in already. So she said that houses are selling 10% above asking price and that if I truly wanted to get it to not ask them to pay closing cost. Under pressure I put an offer of 215k. Now that I am running the numbers. It just doesn't make sense. I am still waiting for an answer but I am super scared that I get it because I feel like that wasn't smart at all. Taxes were 4300 in 2019, current tenant pays 795. I feel like I can raise that to 900 or 950. I got a 3.25 percent interest with 3% down. Any advise? I feel like I really screwed up my first deal. 

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Brad L.
Rental Property Investor · Manitowoc, WI · Member since 2016 · 178 posts · 186 votes
5y

General rule of thumb when analyzing is that gross rents should be at least 1% of purchase price. Even if you were to get $950 from the current tenant and if we assume $950 for your side at some point in the future, you're at 0.88% when looking at monthly mortgage, property taxes and insurance. This doesn't take into account repairs, general maintenance or capex which would push you lower than 0.88%. 

That being said, this all doesn't necessarily mean it's a bad deal for you; what is your goal with this property? Will you live here permanently? Do you intend to move out and rent your unit in the future? What would you be paying in rent elsewhere if you did not purchase this property, is this purchase reducing your living expenses? Do you see a good amount of appreciation in value in your area? Not a deal I'd do personally, but just because it doesn't fit my goals doesn't mean it won't fit yours.

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  • Garrett Maximiuk
    Lender · Detroit, MI · Member since 2020 · 1 post · 1 vote
    5y

    @Gerardo Hernandez

    It’s going to be tough to cash flow on any duplex when you’re only putting 3% down and living in one side. The reason that most lenders require 20% down on investment is because that reduces risk for them and makes it likely that the borrower will be able to make money on the rental.

    Putting 3% down and having a tenant pay for almost the whole PITIA while you reduce your commute sounds like a good deal to me. Saving money on gas, car maintenance, saved time/stress aren’t included in a rental property calculator either.

    1Reply
  • Sunny Hon
    Member since 2020 · 44 posts · 16 votes
    5y

    @Gerardo Hernandez

    You need to take in consideration that during the current market some states are booming. I just received 60% above my asking price last week. Ask yourself this question....are you buying in a state and/or county, etc. that is currently booming?

    0Reply
  • Chinyere Orie
    Real Estate Agent · Baltimore Maryland · Member since 2019 · 98 posts · 74 votes
    5y

    Always stick to your numbers!  This market is super competitive right now, so yes, most buyers are offering over asking price.  But even though getting a deal is important, it's more important to get a good deal.  You don't want to buy a money suck just for the sake of buying a deal.  Trust me I understand.  I'm looking for a multifamily right now and it's super competitive.  But you have to stand by what make sense otherwise you'll regret buying the home b/c you won't make any money.  

    0Reply
  • Sunny Hon
    Member since 2020 · 44 posts · 16 votes
    5y

    @Matt Groth

    Covid19=Armageddon!

    0Reply
  • Daniel Chappell
    Realtor · Kyle, TX · Member since 2020 · 7 posts · 1 vote
    5y

    @Gerardo Hernandez it all depends on what’s most important to you. Sounds like you want to live closer. So what is the opportunity cost by gaining 2 hours back in your day by living closer to work? Can you use that time to create more income?

    Also, if your purchase price is $215k with 3% down at 3.5% interest, you’re probably looking around a $1600-1700 mortgage payment. At $900 for one side, $800 to live in your own place isn’t bad, especially considering location. Not to mention your rental appreciation over the next couple of years in addition to the property appreciation. In 2 years, you could refinance and have a decent cash flowing property.

    It all depends on what your goals are. But if you’re uncomfortable with the deal and you have t received a response from the seller, it’s not too late to withdraw your offer.

    Good luck! I hope this helps!

    0Reply
  • Amber Gonion
    Real Estate Broker · Hugo, MN · Member since 2016 · 688 posts · 596 votes
    5y

    @Gerardo Hernandez generally what we see is that 1% properties end up being more expensive in the long run. I think too many people focus on the here and now. When I buy stocks I don’t get upset if they don’t produce in a week. The same goes for rental properties, we look for properties that will be solid and not money pits. Most properties we look at the 2, 5 and 10 year outlook for cashflow and appreciation.

    Properties that cashflow today may be money pits over the long haul. I don’t know of anyone with a property for over 10 years that is upset over paying by 10-25k.

    We tell our client to look for a solid property and the profits will be there long term, waiting for a home run deal will take a long time and you may end up with a property with lots of maintenance issues and or rental issues over the years.

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