Hey everybody, I have been looking for a multifamily now for several months. My area has been pretty competitive lately. A duplex just came on the market that actually looks like a decent investment. Numbers as follows
235,000$ listing price
2,300$ Income per month (1,150 per unit)
Tenants pay heat & electricity
203$ per month in cash flow after every expense I can think of
13% return on my money w/ 5% down (I plan on occupying the property for just 1 year)
The property just came on the market 36 hours ago and currently has 10 showings in the next 3 days. I am pretty sure it will go for asking price or even higher. I need some advise/input on what I should do to get this property or if you think its worth it. I have had some analysis paralysis over making my first investment property decision and I thought posting in the forums to get experienced insight might help kick my *** in gear!
Hey @Eva Morel , that's exciting! $2300 / month rent on a $235000 listing price gets you 97% of the way to that 1% rule of thumb that a lot of people talk about on bigger pockets, which is a good thing! I don't know your area much, so I'd hop on Trulia and find the address, then look at the crime maps. I'd also want to know what the job situation is like, and what types of jobs my tenants may have. The more variety, the better. Brandon Turner has said a couple of times that he won't rent to roofers or landscapers because they're always dirty when they get home, not necessarily dirty people, but dirty jobs.
All in all, assuming you've accounted for repairs and maintenance, capex, management and vacancy (I typically do 10%, 10%, 10% & 8%, respectively, on those numbers), $203 / month is a decent number!
@Eva Morel - those would be extremely good numbers in Boise. I am not familiar with the Vermont market at all...but for me it would make sense. Everyone's parameters are different. (make sure you figure in your property taxes and insurance, too). If going in owner occupied, be sure to see if one side is month to month so that you can move in within your required time frame. (lender will want to verify this). First deal is the hardest to say yes too... but very exciting!
@Eva Morel I'm a Realtor in the area (based in South Burlington), and yeah multi families go fast, especially when they are cash positive. You'll need a good Realtor who knows how to win the offer, and you'll need competitive offer. Hopefully you are already prequalified for financing.
As @Jonna Weber said, you'll need to be aware of what the leases look like. With FHA financing you should have 60 days until you need to occupy if it is to be owner occupied.
Have you thought about looking in other areas of VT? Barre for example, I know it's not amazing to live there but if it's just for rental income, you can get a cheap property and charge decent rents.
Happy to help you with this deal if you aren't already working with an agent. Obviously I love working with investors or I wouldn't be on Bigger Pockets!
@Eva Morel Hey Eva, what percentages did you include for capex, repairs, vacancy, etc --- I did the analysis using 5% for each of those and got under 100/mo in cash flow -- this also only considers using 5% down, so P+I would be higher than with 20 or 25% down. If you've got the down payment to make it work, it may be a decent property. It already has multiple offers (perhaps one is yours?) so you're right about it likely going for asking price.
Edit - I see you are planning on using 5% down now that I re-read your post... I didn't get the same cash flow when I ran those numbers using a lower down payment. Maybe I'm overly conservative - I'm way under 100/per unit monthly cash flow.
I would just write an offer at what you want to pay. Chittenden County is a crazy market but if you don't put anything in you will never take that step of figuring out if you can make something happen.
I will say I've been under contract as a buyer 6 times but only closed twice and I'm 100% OKAY with that. When I sold my first place, having an offer that put a higher earnest money, shorter contingency period, and pre-approval period was more attractive to me than a price for $5k more. Showing you are serious and motivated to close was more important to me. For example when I sold my SFH the buyers went under contract for $225k but offered $7k earnest money and a 3 day inspection period.
Also, have you jumped on the assessor's office to look up who owns the property? If not, take a few minutes to see if you can figure out who they are and write them an email/letter or give them a call (the google is your friend). Let them you know are happy to work through the broker to make an offer but wanted to introduce yourself and explain your goals. Also see if they would talk to you directly about the property. Something little like that sets you apart and could build the rapport you need to give you the edge.
@Megan Phillips hey! Let me recheck my numbers I did 5% for vacancy, 4%capX, and 4%repairs (since I can do majority of repairs myself and or work with the family business (Morel Construction LLC) to help out with cap x stuff. My Interest rate was 4% maybe that's the difference? That's what my bank quoted me at. I do have an offer in on this property already but I'm going to see it today and from there will reconsider my numbers!
@Nate Burgher hey thanks for the insight! Maybe I’m skimming on my numbers I did 5% vacancy, 4% on both repairs and 4% for cap x, and plan on managing the property myself. I can do a lot of repairs myself which is why I came up with this number and my dad owns a general contracting company that I still work with for cap x. Do you think I’m still too short on my numbers and it’s not realistic? The property definitely doesn’t work at 10,10,10,8% with those items.
I can do 20% down on this property and the cash flow is much better (I think like 500$/month total) but wouldn’t it be wiser to have more cash reserves on hand ? it may take me 2-3 years to save that amount back up again.
@Eva Morel Depends on the PMI costs and your other short term goals. If you're going to save X amount of money without PMI, might be worthwhile to just use your cash. But if you want to keep acquiring properties in the short term, yeah you'll want the cash. Just my two cents.
And I'll second the note from @Ben Granja that you just have to offer what works for you on diff properties and wait for one to work out. If someone outbids you and you did your math right, they're not going to cash flow or they know something you don't.
@Eva Morel It depends what your plan is, if you're using FHA/owner occupy for the first (or repeat) properties, you need some money to refi out of the FHA program at some point after the one year mark (should be no problem with your stated cash reserves). You could also use the option of taking out a HELOC or cash out refi once you're loan is more than 22% paid off -- this is essentially instant if you pay a larger down payment (which also wouldn't require you to live in one side) but may require seasoning depending on your bank. So there are options with either route. You most likely won't be able to finance two properties with low down payments. Are you planning on using 20% down on your next property? Or refi-ing out of FHA and using again in 12 months?
It seems like you have a bit of a leg up on others being confident in repairs and capex help in the future, but like @Martha said, only offer what you're comfortable with. Are you using that leg up to justify a price on a property that won't necessarily cash flow for someone else that doesn't have that sort of help? Or is it a solid property, made even better by your background?
Hey @Eva Morel , sounds like you have some great connections! For the most part it sounds like you're looking at Materials + DIY, but when you're talking big ticket items like Furnace, Roof, etc., those cost quite a bit. And if you're going DIY, you're not paying yourself for your time if you're only accounting for materials cost. What if you or your family member that can do the roof is incapable due to health or personal reasons come time to do the roof? Then you're short the $3k-$4k in labor, and that just comes out of your pocket. What about 15-20 years from now? Are you going to be at a point where you still want to be DIY?
Just some things to consider and think about. In the short term it sounds great to save some bucks, but is that something you want to do in a decade? Only you can answer that.
@Nate Burgher yeah that is true, I definitely did not think of that, I'll reconsider my numbers! @Megan Phillips the cash flow definitely works better with 20% down and it makes more sense for me to just do the 20% down and HELOC later if needed doesn't it? I'm pretty uneducated on the finance piece so thanks for that info.
If you have the money for 20% down and also wouldn't need to live there, I might go that way, and you'll have the option to pull some money out if you find another property you want - it would also let you use a lower down payment option in the future. It seems to be priced right with multiple offers coming in within a few days of being on the market. What did you think when you visited the property?
@Eva Morel Congrats on finding a nice investment and let us know how it goes!
On the financing side, remember if you put 20% down, I'm not sure if you can instantly HELOC to get that money back out. Last I checked for non-owner occupied most banks are lending up to around 80% of appraised value. But certainly call around.
On the DIY side, most of your electrical and plumbing work has to be done by licensed contractors. VT requires hard wired smoke / carbon monoxide detectors. Not terribly expensive, maybe $1k tops for a duplex. If it's already a rental, they should be in there already.
Numbers with your property seem good overall,
@Megan Phillips property looks pretty clean and solid. Tenants were a plus too! (I'm pretty sure the last triplex I looked at someone was doing drugs in one of the back rooms we peaked into...scared me away fast!) Anyway, the only thing that does concern me is the bedrooms that are on the lower level (which is partially underground) do not have windows up to code for Vermont Fire/Safety, they need to be egress windows and they are not (I guess we will find out in the inspection report). Windows will also need to be replaced in a couple years. Good to anticipate that expense up front I guess.
@Tom S. Thanks for the info on the HELOC!
@Eva Morel - next step is to put the prosperity under contract. You can always do your due diligence after you put the property under contract. If you are in a hot market, like I am, you make offers without seeing the property first. I've done this successfully many times. Can be scary, especially on your first, and you want to ensure you include contingentcies to help ensure your EMD is returned if you end up not liking the deal for some reason. Best of luck!
@Eva Morel Hey Eva, I think you should offer the asking price.
Follow Nike's advice and "Just Do It" lol. It is a decent deal to start with it.
Hope this helps, Eva. Goodluck and let us know how things panned out. Thanks! - Ola
Updates? Was your offer accepted?
@Eva Morel Any update on this potential deal?
Am I the only one who thinks this isnt worth it? Youre under 1%. 1% isnt really working in todays environ now that money has gotten more expensive. If there is any deferred maintenance that the inspection doesnt catch (and in my experience, the inspection is next to worthless and they cant be held liable) then its going to be even worse. There are much better finds out there, hold your money till you find something worth buying.
Offer accepted! With this being our first purchase I’m excited and terrrifed at the same time! But I’ve heard the first one usually is a little overwhelming.
Now just torn between putting 10% down and house hacking or 20% down and staying renting. I know it probably seems like a no brainer but we love Essex Junction and let’s just say Milton isn’t that appealing to live in and we would make great cash flow with 20% down, but at the same time I would like to buy another multifamily this year. Decisions decisions!
@Eva Morel great to hear and good luck!
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