I have been keeping my eye on a couple duplexes and I am having trouble trying to find comps for one of them. I could make 2% per month on it but I am just afraid that I may possibly pay too much for the property. Any of the comparable properties I found were sold at $30,000, This one is in auction for approximately $41,000 right now (minimum not yet met).
So I am thinking I am paying too much for a property that I would be starting out in the hole.
Is this different with Buy and Hold when I plan to hold onto it for 3-5 years?
I wanted to run this by the experienced investors and get your inputs.
duplex for 40k ? everything around it same ,or lower...... I don't know how you'll put equity into them, is this a C- area?
@Adam Mittermeier On the surface this just doesn't sound like a deal.
First it seems you are paying as much as $10K more than nearby properties.
Next it is a C area, is that a C on the way up or a C on the way down?
The problem with low end properties is the relative cost of repairs. If you need a new roof it is going to cost you say $3,000. If you are getting $1,200 a month rent, that is a real annoyance. If you are getting $500 a month rent that can crush you.
Back to the first point, paying more than a neighborhood is worth is OK as long as you realize that is what you are doing. You may have a legitimate reason to do so like great cash flow. If you make that choice you need to understand the risk you are taking.
I have a friend that uses that strategy. He buys in one low end neighborhood. Hey only pays $10k~ but after repairs he is into the properties for more than the neighborhood is worth. He is making great cash flow. It works for him. However he is a VERY experienced landlord and I certainly wouldn't recommend his strategy.
@Adam Mittermeier @Ned Carey Ned has a good point, is it a C going up or a C going down ... and if you can't tell id assume going down just to balance risky . Even if all is well, you won't be getting much equity cause of the neighborhood so your banking on your 2% and nothing going wrong. I would probably pass if others are going for 30k , maybe be patient for the next one with comps above yours to have room for a price increase
When a person says it's C-section it's probably in the D category.
2% kinda confirms it's a Bad 👦 neighborhood.
Buy them. Take the 2% or more laughing all the way to the bank.
Thanks for the advice everyone, I ended up passing on it. I had the same thoughts that you did and im glad I could confirm them with you more experienced investors.