Portsmouth, VA · Member since 2013 · 43 posts · 3 votes
I've ready several books for the past few months and I think I know enough to at least be able to push through with my first duplex this year. I will be using a VA Loan so me and my wife will have to live next door. From what I've read here in BP, it looks like most investors start out with distressed properties they can buy for 30,000-50,000. Since I'll be using a VA Loan, buying a distressed property is already out of the equation.
My question is, however, is it a smart move to buy my first rental at the 200,000-300,000 range? Provided that I'm looking at 3br multi-family properties in good neighborhoods.
Real Estate Investor · Boston, MA · Member since 2013 · 108 posts · 71 votes
12y
Really need more details. I have a two-family under contract right now for $230k, it's gutted to the studs and needs about $150k rehab. ARV somewhere north of $475k and the rents will be around $1800 per unit.
Gotta love RE investing in greater Boston!
Real Estate Broker · Lakeland, FL · Member since 2011 · 305 posts · 181 votes
12y
That sounds a bit high.. What are properties in your area going for? Take yourself out of the property for a minute. Could you rent it to two strangers and cover the mortgage plus maintenance and still cover a profit? If so, how much profit? What's the local market rent? That should help you set a purchase price and figure for monthly expenses plus profit.
Contractor · Round Rock, TX · Member since 2013 · 767 posts · 389 votes
12y
I'm with Gavin. Sounds a bit high. What does it rent for? How much are you financing? What happens when you move out in a few years? Will you make any money on it.
Ellington, CT · Member since 2013 · 1 post · 0 votes
12y
I would definitely figure out what rents are going to be in the area before you move forward with the deal. A good rule of thumb is the 2% rule. This means rental income should equal at least 2% of your purchase price. There are however several other factors to consider including the area, condition, and potential appreciation although this should not be heavily weighted.
Salem, OR · Member since 2013 · 701 posts · 159 votes
12y
I like to receive 3 percentage points above my cost of money. For instance, if your cost of money is 4.5% then I would want a 7.5%. Using 50% as an expense ratio you would need $2,500 a month for a $200,000 property and $3,750 per month for a $300,000 property. This is if you were to rent both sides.
My guess is that your rents would not be that high??
You have to decide if you are willing to take a smaller return and have a nicer property that you would be willing to live in.
Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes
12y
You need more numbers. Here in San Diego a 250K duplex would be a steal at about 60% of ARV. You also won't find anything here in SD that actually cash flows at the prices they're selling for, at least not if you include things like vacancy and maintenance :)
So 250K could be good or could be a dog, it depends on the other numbers like rents and local expenses like tax and insurance rates.
Portsmouth, VA · Member since 2013 · 43 posts · 3 votes
12y
First of all I wanna thank everybody for the feedback, I really appreciate it. Now, I'm not trying to step on anybody's shoes but I'm having trouble grasping the concept of the 2% rule. Wouldn't that mean I would have to rent my property at $4,000 (2k per unit)? I don't think I'll be able to get away with that because most 3 bedrooms in my area rent for $1200. Not to mention they're single families too. $2500 sounds more feasible. I can probably rent each unit for $1250. with a mortgage of 1,500/mo.
I'll update you guys with pictures of the property and the address too.
Real Estate Investor · Boston, MA · Member since 2013 · 108 posts · 71 votes
12y
Really need more details. I have a two-family under contract right now for $230k, it's gutted to the studs and needs about $150k rehab. ARV somewhere north of $475k and the rents will be around $1800 per unit.
Gotta love RE investing in greater Boston!
Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
12y
@Account Closed , the 2% rule simply doesn't work in higher end properties unless you buy way below market. You actually have to know how much the place will rent for and its ARV before we can do any meaningful feedback on if your deal is good or bad.
Portsmouth, VA · Member since 2013 · 43 posts · 3 votes
12y
Hmm. Good question with the ARV, I would have to come back with those numbers. Would ARV still be the right term to describe it after I have made some modifications to the units? It would have to be liveable before I can buy it due to the VA Loan so I'm I haven't really thought about how much repair it's going to need.