Rental Property Investor · Member since 2019 · 55 posts · 44 votes
I found an off market deal that is just slightly below the market rate, so I wouldn’t walk in with much equity. Both units are currently rented out, and at the current rents, the property would have positive cash flow, but minimal.
However, the current rents are around $300 each for a duplex, so $600/month below market rent rate for the area.
My question is - would you buy a property that off the bat would have low cash flow, but once rents were where they should be would have great cash flow?
Investor · Manteca, CA · Member since 2017 · 1k+ posts · 2k+ votes
5y
Absolutely yes.....
BUT......one factor that many people overlook when they evaluate "market rate"..... is the unit REALLY going to pull that market rate in its current condition? LOTS of units that are under market rate haven't been updated or rehabbed in a LONG time...... so to really justify getting the market rate in the area, you often have to put in some $$ up front to get them into the real condition where people will pay the market rate.... its more than bedroom, bath room, sq footage comparisons when you determine "market rate" for your area
So if you have a tenant that is under market rate and you jump up to the going rate and the "market rate" will get them a nicer place with new paint, flooring, fixtures etc and your unit hasn't been touched in years, they will likely leave to a nicer place that costs the same
Wholesaler · USA · Member since 2019 · 42 posts · 32 votes
5y
@Sarah McCluskey
I calculate both current and pro forma numbers. I’d be honest about the pro forma numbers as it’s easy to manipulate it for better numbers. To get market rents it has to be updated inside. Sounds like a solid amount per door! 10k under market is good if your just buying and holding to scale your portfolio with cash flow.
Rental Property Investor · Member since 2019 · 55 posts · 44 votes
5y
@Giancarlo Orozco thanks for the comment! I think I’m just getting hung up on feeling like I always need to walk in with a ton of equity for it to be a good deal, but I really do think long term buy and hold this is a good opportunity :-)