AM I losing Money on This Duplex Or Is It OK?

Buying & Selling Real Estate
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AM I losing Money on This Duplex Or Is It OK?

Barbara G.
Hartsdale, NY · Member since 2015 · 874 posts · 218 votes

How are we doing here?

We Bought 2 matching Duplexes in Feb of 2014 and paid  $332,000 (+ closing costs) for both of them.

They needed approx $37,000  ($18,500 each) worth of rehabbing and were occupied with tenants paying $1,000 each.  We raised the rents to $1,100 and one tenant moved and we were vacant for  2 months while we renovated that apartment.   We spent approx $20,000 so far on renovations and estimate we have approx $17,000 more to spend on renovations.

The bottom line is we don't think we will be finished paying and doing renovations until March of 2016 so we have put all our cash flow back into renovating these 2 duplexes.  When we are finished the 2 will have cost us approx $369,000 and we will have gone without any money for over 2 years

We have saved approx $10,000 in taxes (we believe), and paid down our principal on our morgage approx $8,000.  Zillow puts the estimate of the 2 duplexes at $500,000 which if correct is a lot of appreciation?

So how should we consider this purchase?   Is it a success? or a failure? or just OK?  

These 2 were our first real estate purchase so it was our entry into real estate and we are glad about that

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Mike D'ArrigoPro Member
Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
11y

@Barbara G.This looks like a classic case of not defining your objectives before making an investment. Without having a clear financial objective, you can't possibly know if you're successful . It's like driving your car and not knowing where you're going. How do you know if you got there?

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  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    11y

    LOL.  Ask her.

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  • Barbara G.
    OP
    Hartsdale, NY · Member since 2015 · 874 posts · 218 votes
    11y
    Originally posted by @Brent Coombs:

    @Barbara G., 

    Barbara G  said: " the rent from these 2 duplexes is $4,400 a month" 

    Brent Coombs asked:

    But, aren't your expenses (while renovating) $4,400 per month? ie. NO cash flow? And, NO monthly return on your initial outlay of $83k cash? (Well you DID ask: Am I losing money?)..

    ====================================================

    BG answer to the question above:

    I don't consider the renovations as part of my expenses.  I consider the renovation part of the original cost of the house.  Instead of borrowing that money from a hard money lender I am borrowing it from myself from the cash flow of the house.  So if my cash flow is $2,200 a month and in 5 months I will have accrued $11,000.  $11,000 is all I need to finish renovating my  4 units.

    So Beginning  March 2016 I will be cash flowing $ 2,200 a month plus I will have improved my property more then the $30,000 I have put into it to renovate it.  

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  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    11y
    Originally posted by @Barbara G.:
    Originally posted by @Brent Coombs:

    @Barbara G., 

    Barbara G  said: " the rent from these 2 duplexes is $4,400 a month" 

    Brent Coombs asked:

    But, aren't your expenses (while renovating) $4,400 per month? ie. NO cash flow? And, NO monthly return on your initial outlay of $83k cash? (Well you DID ask: Am I losing money?)..

    ====================================================

    BG answer to the question above:

    I don't consider the renovations as part of my expenses.  I consider the renovation part of the original cost of the house.  Instead of borrowing that money from a hard money lender I am borrowing it from myself from the cash flow of the house.  So if my cash flow is $2,200 a month and in 5 months I will have accrued $11,000.  $11,000 is all I need to finish renovating my  4 units.

    So Beginning  March 2016 I will be cash flowing $ 2,200 a month plus I will have improved my property more then the $30,000 I have put into it to renovate it.  

     ============================================================

    There's a huge difference between the "cost of the property" when someone else is paying for it (leveraged...with the tenant's rent making the monthly payments, and thus paying for it), and the "cost of the property" when you are actually paying for it out of your cash flow.  Any cash you put in is a cost, as in "one direction money"...any money paid by the tenant's rent (before you get your cash flow), is an expense...since it comes back to you.

    You should be keeping your cash flow.  Just add up all the money out of your pocket that you put in...that's a cost.  Now offset that by the cash flow you actually keep...that's income.  If the "cash flow" you keep is less than the "cash out of pocket" you put into the deal, you have negative cash flow.  Putting more money into the deal doesn't help...it just means you are paying all that negative cash flow up front...and you're actually further behind from the start.

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