Older Duplex with higher Cap or Newly Renovated Home

6 Replies

Buying first rental property

Have offer on the table of $49.5K for a duplex that has renters who pay $550 per unit ($1100/month)
-was originally listed at $69K but talked it down
-On the corner of the block with a bus station right out front and a restaurant right next door
-built in 1900
-will need work very soon probably

Or should I wait for:

A newly renovated SFH in an up and coming part of town for the same price that rents for $700/month.

As an experienced investor, what would you do and what are immolate things I should consider?

It really depends on what your long term goal is but if it were me I would buy the SFH in upcoming area. I say that because I have some older rentals in a not the most desirable parts of town and I want to dump them and get newer nicer houses that might cashflow a little less but last me longer. Also the part of town where my rentals are attract a certain kind of tenant and it sounds like that duplex might be in a similar part of town.

Another thing about the SFH in the upcoming area is that it might go up in value, I never count on that but it's something to consider when you are thinking about your exit strategy.

Good luck

Josh Nix

    Hey Travis, Being that you are younger investor I would recommend the renovated property on the basis that the older unit will end up costing you money to fix up and vacancies at the same time. The cheaper properties always look better on paper but usually end up being quite the headache. If you need any assistance on the Indy area don't hesitate to reach out.

    Goodluck! 

    Welcome Travis! Wait for that SFH; approve and place your own tenants. Coming into a property with tenants already in place can sometimes be problematic. Do you currently have a leasing and/or management company in place?

    I asked this same question to many investors a few months ago. The consensus was that SFH are a better investment than Multiunit specifically for the Indy market. They told me that the rents for a SFH and a Duplex are very close if not exactly the same. People will go for the SFH every time. It's also easier to manage a SFH opposed to a Multiunit because you don't have to deal with conflict between the units in a multifamily. Specifically noise complaints. A SFH will also be easier to resell as an exit strategy in the future. Both investors and home owners are interested in SFH where as only investors would be interested in a duplex. And in the Indy market it seems like minimal investors are interested in multi units. That leaves a small group of people to resell it to if you ever decided to do so. Cash flow may seem better but is it really?

    You pay $60k for a duplex with $1100 rent/ month = 1.8% rent/price ratio.

    For $70k you could get 2 SFH ($35k each) for $700 rent each ($1400 total) = 2% rent/price ratio.

    Now even if you were more conservative with the rent and said $625 each ($1250 total) with 70k purchase price total for both properties = 1.8%

    My point is don't let the cash flow cloud the bigger picture. Think outside the box and put all the pieces together. The numbers are important but only 1 piece to the puzzle.

    Also...the fact that the seller dropped his price by $20k is a big red flag for me.

    Make sure you get an inspection! I have a feeling there's a lot of repairs needed.

    @Travis Washington those old duplexe's look sooo sexy on paper - I had 22 of them at one point.  It was a happy day when I sold the last one!

    IMHO- I would highly suggest you run [not walk] away from this one and focus on a nice post war built SFH.

    No, they don't look as sexy but they do work and work well.

    Easier to rent, maintain and resell.

    I hope that helps.

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