My husband and I are beginning our search for our first rental properties. We are looking at areas like Lithonia, Lawrenceville, McDonough, and Conyers.
It seems like we can get decent 2 unit duplexes in the 70k-80k range and triplex to quads in the 150k range. Does anyone know the pros and cons of breaking up your investments? We are trying to understand if it makes more sense to get 2- 2 unit duplexes or get 1 4 unit quad.
We would get conventional financing with the first property and would do a subject to deal if we went with a second one.
I don't think it makes a big difference. I'd look at price per unit and total expense per unit per month versus how much can be expected in rent per month (worst case). I'd also only go with units that are already separately metered for all utilities.
I am no pro around here so I can't say for sure but it seems to me that (at least in my area), SFR are the best investments. Another local investor at a meeting said that when someone or a family lives on a home on their own in a homw their more likely to treat it with care and respect because it is less like an apartment.
Hey Rosanna welcome to BP!
I'm relatively new around here myself but I will attempt to answer your question to the best of my ability.
What are the pros and cons of breaking up your investments?
First of all, to my current understanding, this totally depends upon the nature of each deal and knowing how to read the numbers. Every deal will be different so you will want to invest where the numbers make sense.
What are the pros of having two duplexes?
Well, right off the bat, all of your capital or investment won't be tied up in one property. If a natural disaster hit or fire burned down one of your properties, God forbid, you would still have one income producing asset. The same would not be true if all you owned was one quad.
What are the pros of having a quad?
I would imagine maintenance on the property would be a little cheaper than maintaining two different properties. Also, one vacancy in a quad may not hurt as much as one vacancy in a duplex.
There may be others that I'm not thinking of. Hopefully a pro will chime in with some more advice for you! I would say the most important thing to consider are the numbers that make up the deal itself. If your ROI and cash flow will be significantly better on one strategy versus the other, then you know which direction to take. I hope this helps, and I trust if I'm wrong about anything that I've said a pro will correct me!
Best wishes to you and your husband!
@Rosanna Gonzalez I would go as large as possible with each purchase so if the options are 2, 3 or 4 unit then I'd recommend 4
I'd buy the one with the best numbers.
The first thing you need to define is what you expect out of the deal. I use:
20% Cash on Cash Return AND $125/month/unit cash flow
This dictates all of my offers. If I can do better than the above numbers, go me!, but I'll never intentionally get myself into a situation where my returns would be lower than those numbers.
Beyond that you want to maximize the cash you have. 2 properties have 2 sets of Capital Expenses (roofs, furnaces, water heaters). If you budget for these, it will be irrelevant to the returns you will see.
Bring your possible deals to BP. We have a great set of eyes for digging into numbers. The basic set of expenses I look at when evaluating deals are:
Sewer and Water
Cap Ex and Ops (my personal minimum is $150/roof/month)
Mgmt Fee - as a % (general consensus here on BP is 10%. include it even if you think you are going to self manage)
Vacancy- as a %. (8% represents 1 vacant month/unit/year)
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Thanks everyone..this helps. we are trying to capitalise on our mortgage (which will probably the last one we qualify for a while) as much as possible.
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