Duplex cash flow question!

9 Replies

Hi, I am new to investing and I am looking for my second deal. There is a duplex for sale that is actually a 15 minute walk from my house. Great school district, fast growing area, pleasant middle class neighborhood. 

It is fully occupied with the leases running out in a few months. The cashflow at the current price and current rent would only be 200 a month for the entire thing, but I was wondering if it is worth it to just buy something that is immediately cash flowing day one with the intent to raise rent later, or should I keep looking for things with a higher cashflow (which seems to be difficult to accomplish right now in the DFW. My first property is fantastic, but there was a lot of luck and right place/right time on that one)

I dont mind being patient if its lower risk. I want at least 10 properties before I begin financially riskier endeavors. But I also dont want to throw my money in a cash trap. 

@Jessica Hughes

There’s some missing info...for one...what return on investment does that $2400/year in cash flow represent against your cash needed to acquire it?

How much do you feel you could increase the cash flow and how much would you have to invest to do so?

Including closing costs, about 48000. So right at 5%. The appliances, roof, AC, and flooring is all less than 5 years old, so I am talking about a duplex in good condition already. 

My first property is giving me about a 14% return on my cash, but was a lot of work. Mostly wondering if it's worth a low return for practically no work, assuming I can raise the rent maybe 25 to 50 dollars per month each year as my area gains popularity? 

Updated over 2 years ago

@Brandon hicks

Originally posted by @Brandon Hicks :

Including closing costs, about 48000. So right at 5%. The appliances, roof, AC, and flooring is all less than 5 years old, so I am talking about a duplex in good condition already.

My first property is giving me about a 14% return on my cash, but was a lot of work. Mostly wondering if it's worth a low return for practically no work, assuming I can raise the rent maybe 25 to 50 dollars per month each year as my area gains popularity? 

@Jessica Hughes

Without knowing your criteria, goals, how easy it is for you to come up with another $48k I’m not sure how to advise you.

Me personally, I'd never put $48k into a deal for $200/month. If I were you I'd be looking for some deals that I could use the BRRRR strategy on keep that cash moving into and out of deals. $200/month might be perfectly fine if you do a project and end up with no money left in the deal.

Cash flow; I've been taught to consider that this is after your expenses and your debt service. Is that where you are getting your $200?

To some, with what i mentioned above,  cash flow $200 a door per month is actually relatively good on a duplex. Especially with some ability to raise rents. You mentioned other great qualities such as area, schools, neighborhood, etc. With what you gave me i like the property and i think it is a safe investment.

Originally posted by @Bjorik Mutize :

Cash flow; I've been taught to consider that this is after your expenses and your debt service. Is that where you are getting your $200?

After all my expenses it is 200 total, not per door. But that's at asking price assuming I don't totally lowball the guy. I'm still just thinking it over.

Originally posted by @Brandon Hicks :

@Jessica Hughes

Without knowing your criteria, goals, how easy it is for you to come up with another $48k I’m not sure how to advise you.

I'm sitting on 60k in cash for properties. I was looking to get 5 properties in 2 years buying single family homes and renting them longterm. In the DFW I am running into a lot of all cash flippers as competition so I am having a hard time finding properties that make sense at the moment. And the wholesalers hit it pretty hard here too. 

Got 46k I'm rolling into a self directed IRA next June for a property. Got maybe 1500 give or take a month passive income I'm stacking on my house cash through some mutual funds and stock too.

I was a union carpenter and enjoy the remodeling process, so I do like fixing places up, but this one is appealing because it seems like I can get it with the almost guaruntee of excellent cash flow in like, 5 years, with zero work and then I have time to do a more involved reno with my other cash (plus my zero interest business card that's still got about a year on it).

I'm trying to look at it from a 10 years from now perspective though. Like 10 years from now, will I be glad I put up with janky cash flow for a little while to better my long term cash flow outlook? Or regret missed opportunities I could have taken if my cash wasnt tied up? 

Maybe I just need a solid fortune teller, any recommendations? 

@Jessica Hughes

You can always put in a lower offer. $200 cash Flow Isn’t that great not knowing if that $200 is after mortgage taxes insurance Capital expenditures and all other items you have to account for