Would you buy a property that was break even with 75% LTV?

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Would you buy a property that was break even with 75% LTV?

Alex Silang
Real Estate Professional · Las Vegas, NV · Member since 2013 · 225 posts · 74 votes

That's what the deals look like in my area. ~$800k for a triplex. With 25% down, you'll essentially 

breakeven.

BUT

* Approximately $600/mo principal paydown.

* Decent growing area (maybe 3% appreciation). I know that there are some people here (often in the Midwest) that hate to rely on appreciation. Well, anything on the coastal areas have been cruising on counting on appreciation.

* Rent raises

So I've never done this before - when I bought my previous two properties there was decent cashflow from day 1. Any thoughts on a break even property?

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Seth McGatheyBusiness Member
Real Estate Agent · Milwaukee WI · Member since 2024 · 321 posts · 255 votes
1y

I think break even is fine assuming you mean breaking even after capex, management fees etc. Because some people make the mistake of not leaving anything for some of those "extra" expenses. So they are actually negative cashflow pretending to be breakeven. 

But the real question, why not invest somewhere else? You even mention the Midwest, which is where I am at. In my market of Milwaukee you would get 2-3 properties for $800k. I bought a duplex last year for $300,000 and I am cash flowing $500 already and that is even with one long term tenant being below market rent because I didn't want to jump her rent double in one jump. 

[email protected]708-297-0996
Seth McGathey - Shorewest Realtor4.912 Reviews
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  • Seth McGatheyBusiness Member
    Real Estate Agent · Milwaukee WI · Member since 2024 · 321 posts · 255 votes
    1y

    I think break even is fine assuming you mean breaking even after capex, management fees etc. Because some people make the mistake of not leaving anything for some of those "extra" expenses. So they are actually negative cashflow pretending to be breakeven. 

    But the real question, why not invest somewhere else? You even mention the Midwest, which is where I am at. In my market of Milwaukee you would get 2-3 properties for $800k. I bought a duplex last year for $300,000 and I am cash flowing $500 already and that is even with one long term tenant being below market rent because I didn't want to jump her rent double in one jump. 

    [email protected]708-297-0996
    Seth McGathey - Shorewest Realtor4.912 Reviews
    WebsiteView Page
    2Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    1y

    Define "break even" with exact numbers.  25% down isn't break even if it took the added 5% DP to get there.  It means you paid your negative CF up front in the form of the extra 5% DP in out of pocket cash, that you have to recover.

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  • Alex Silang
    OP
    Real Estate Professional · Las Vegas, NV · Member since 2013 · 225 posts · 74 votes
    1y

    edited

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  • Marcus Auerbach
    Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
    1y
    Quote from @Alex Silang:

    That's what the deals look like in my area. ~$800k for a triplex. With 25% down, you'll essentially 

    breakeven.

    BUT

    * Approximately $600/mo principal paydown.

    * Decent growing area (maybe 3% appreciation). I know that there are some people here (often in the Midwest) that hate to rely on appreciation. Well, anything on the coastal areas have been cruising on counting on appreciation.

    * Rent raises

    So I've never done this before - when I bought my previous two properties there was decent cashflow from day 1. Any thoughts on a break even property?

     I definitely count on appreciation (on top of cash flow) here in Milwaukee:

    - Median home prices have gone up 5-7% every year for the last decade
    - Home prices have doubled in the last 10 years
    - Q1 has been up 11%
    - Milwaukee is the 3rd most competitive market for renters in the US, according to data from Rent Cafe
    - the catch? It's not easy to get something under contract!
    - most of the sunbelt markets have turned red this year, I can feel the air getting thinner here as well, but so far we still get multiple offers on most listings
     look up Milwaukee market update on YouTube
    click on the picture to enlarge

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