Is this a good deal for first property!

16 Replies

Duplex 2 bed 1 bath on each side with 2.5 car garage.

Listed for around 269k

Offer around 250k

Rents for $2200-$2400 total

Taxes are about $6900

Loan 3.25%

Great area that will supply A+ tenants.

This would be my first property. Thanks.

A couple of things.

1 - Rents mean nothing if the CF that results is low.  What's the CF?

2 - There is no such thing as "good for the first deal". Either it's a good deal or it's not. There are no "gimmies" in REI.

Originally posted by @Joe Villeneuve :

A couple of things.

1 - Rents mean nothing if the CF that results is low.  What's the CF?

2 - There is no such thing as "good for the first deal". Either it's a good deal or it's not. There are no "gimmies" in REI.

With conservative estimates it will cash flow about $290 per month after all expenses.  

Tyler

How much are you putting down.  Based on your input, if there are no repairs required, 20% downs and 5% maintenance, vacancy, and management the numbers look good.  

You need to make sure you are including all numbers in your calculation to determine cash flow.  I know the market is hot right now but you don't want to start with negative cashflow.

What is your strategy?  Are you buying to hold long term or are you looking for appreciation to set you up to sell in a few years.  I would look at all the parts before you decide if it is a good deal for you or not.

Originally posted by @Andrea Lane :

Tyler

How much are you putting down.  Based on your input, if there are no repairs required, 20% downs and 5% maintenance, vacancy, and management the numbers look good.  

You need to make sure you are including all numbers in your calculation to determine cash flow.  I know the market is hot right now but you don't want to start with negative cashflow.

What is your strategy?  Are you buying to hold long term or are you looking for appreciation to set you up to sell in a few years.  I would look at all the parts before you decide if it is a good deal for you or not.

 I have 10% in for vacancy. 5% cap ex no improvements needed at this time. 5% maintenance. I also have rent factored in at the $2200 total not potential $2400. It would be a long term hold for now. 

Originally posted by @Andrea Lane :

Tyler

How much are you putting down.  Based on your input, if there are no repairs required, 20% downs and 5% maintenance, vacancy, and management the numbers look good.  

You need to make sure you are including all numbers in your calculation to determine cash flow.  I know the market is hot right now but you don't want to start with negative cashflow.

What is your strategy?  Are you buying to hold long term or are you looking for appreciation to set you up to sell in a few years.  I would look at all the parts before you decide if it is a good deal for you or not.

 I am putting down 25%. 

@Tyler Lloyd My initial reaction with questions like these is to ask "what are your goals?" Run it through the BP calculator and you tell us if the COC return or the monthly cashflow is strong enough for you. You need to define what is a good deal for you.

But, if you're looking for a real answer, I would say: I was going to say it's a "no," but we don't have enough information. It doesn't meet the 1% rule and it only cash flows $145/mo per unit with CONSERVATIVE numbers. That's a tight margin. 

However, if the property was recently renovated and it doesn't require any immediate repairs it could be an "OK" deal. Your interest rate is very low and you mentioned you'll have A+ tenants. I'd be willing to slightly overpay for A+ tenants. Most A+ areas will have further appreciation upside. 

    Welcome to BP! 

    I am always hesitant to answer these questions- I think many of the posters here on BP throw out their opinions through the lense of their experience, resources and their market. You have a totally different set of knowledge and resources than anyone else here. 

    My (non) answer to your question- will this property get you closer to your short and long term goals? How will it do that? Will it more than pay for itself? 

    Doesn't matter to me if someone else thinks my deals are "good," it matters to me if that property will get me where I am going. If this one will do that for you, then it's a good deal. 

    BTW- I guarantee that if I posted nearly every deal I've done here, I'd get torn apart, and I'm a full time investor and run a thriving turnkey investing business, so go figure....

    @Tyler Lloyd my first question to those who are looking at their first deal in this market: 

    "How long are you planning on holding it?"

    Time does a lot of the hard work in RE. If you're buying in a location that will have great tenants and you hold it for 15 years then does it have to be a good deal on Day 1?

    Many others will disagree on this forum but I think if you can hang on to it for 10+ years then you won't regret buying just about anything in a great location.

    Originally posted by @Tyler Lloyd :
    Originally posted by @Joe Villeneuve:

    A couple of things.

    1 - Rents mean nothing if the CF that results is low.  What's the CF?

    2 - There is no such thing as "good for the first deal". Either it's a good deal or it's not. There are no "gimmies" in REI.

    With conservative estimates it will cash flow about $290 per month after all expenses.  

     OK.  Now, how does that number fit in with your overall financial plan?

    Unfortunately, it doesn't matter in this case.  If you are putting 20% down, $50k, that means it will take you 14 years to recover your cost...that's WAY toooooooo long.

    BiggerPockets has some great tools you can use to estimate your cash flow. They also provide a video to help you plug in any information you don't know.

    At the top of the page hover over tools, then click on the desired goal you want to achieve for the duplex. It will prompt you to the BiggerPockets calculator.

    I tend to agree with @Joe Villeneuve , your money will be tied up in this deal for a long time, and in that time great opportunities may come up that will pass you by. I think the point is putting the least amount of money into this deal as possible, so $40k down and taking a $30k HELOC sounds like a bad idea. Can you house-hack it and put 3-5% down instead? My inclination is that this is not a great deal. Your money will go farther if you can either find something under market value or add value to the property. Take this with a grain of salt as I am a new investor.

    @Tyler Lloyd did you do an inspection on the property? What kind of condition is it in?

    Also how much is insurance?

    Take rent and subtract the following

    Expected vacancy as % of rent (property management company in area can give you reasonable number)

    Repair and maintenance as % of rent (thus need to know condition of major assets in house such as roof, furnace, etc..)

    Property management as % of rent if you are using one

    Mortgage, interest, tax and insurance

    If all that meets your criteria then you should feel good about it.

    Originally posted by @Tyler Lloyd :
    Originally posted by @Andrea Lane:

    Tyler

    How much are you putting down.  Based on your input, if there are no repairs required, 20% downs and 5% maintenance, vacancy, and management the numbers look good.  

    You need to make sure you are including all numbers in your calculation to determine cash flow.  I know the market is hot right now but you don't want to start with negative cashflow.

    What is your strategy?  Are you buying to hold long term or are you looking for appreciation to set you up to sell in a few years.  I would look at all the parts before you decide if it is a good deal for you or not.

     I have 10% in for vacancy. 5% cap ex no improvements needed at this time. 5% maintenance. I also have rent factored in at the $2200 total not potential $2400. It would be a long term hold for now. 

    $220/month for maintenance/cap ex for two units is too low (my conservative pro forma in my market would use at least double this number).  Cap ex on small kitchen is $40/month each in my market.  Where is your PM costs?  Either you hire someone or you have the job.  If you have the job, you should be paid for it.

    Using 50% expenses (50% rule) other than P&I, 80% LTV (you may only be getting 75% LTV which improves the cash flow but hurts the return) for rough cash flow estimate (pro forma should be conservative so all ranges (i.e. rent) are using the conservative range): $2200 (rent) - $1100 (50% expenses) - $870 (P&I: will be less at 75% LTV) = $230 or $130/unit.

    This cash flow is not very good for $50K (80% LTV) RE investment amount. $230*12=$2760. $2760/$50000 = 5.5%. This is far below lifetime S&P 500 return which is more passive, but the 5.5% does not reflect any equity pay down, tax benefits (depreciation of the structure) or appreciation.

    Unlike Joe, I believe most investors start with infield singles.  I believe a deal that is OK for a newbie may not interest some more experienced investors.  I believe you need to start in order to improve and learn.  

    I do not know the metrics for the area, but if the population is growing, jobs are diverse, historically RE appreciates faster than CPI, you indicated nice area, this may qualify as a single.  

    You could achieve a better return with less passive options like BRRRR, but they take time/effort.

    I have purchased RE with worse cash flow projections than this property (twice I have purchased properties that were virtually cash flow neutral with my conservative projections).  They had value add and I was confident of appreciation far greater than CPI.  Cash flow is not the only number that comprises the return.  All of our properties have over 1% rent to purchase ratio and yet the cash flow is dwarfed by the return from appreciation.  My point is there are quite a few criteria that determine the quality of an RE investment and cash flow is just one of those criteria (and the one I value the least but admit I am in the minority on this site).

    Good luck