Duplex or save for 5+ commercial rental

6 Replies

Hey All,

I bought my first property last year, a duplex that I am living in half of. Now in my pursuit of self employment I am looking at purchasing another. I found a foreclosed 3 unit for 48k in a very desirable area, but it requires a lot of work. 25% down and after renovations i'll be looking at 20k, which will provide a net rental income of $1000/mo. It would take me about 1 month to renovate each unit, working part time. It's an attractive thought, but i've been wondering if it makes sense to keep saving for another year or so and buy a more dense property, maybe a 5+ unit building. What do people usually do in this situation?


Thanks

Hey John,

I would say it depends on your acquisition criteria and goals. Does this property meet your cap rate? Are you looking to refinance within a specific timeframe? What's your overall goal?

I personally built around a 10-12% cap rate, $150/door model with purchase at or close to 80% ARV when completed. Anything that fit my criteria within the areas of was comfortable investing in was considered.

Hope that helps!

My cap rate on this one would be 15% but there's a lot more work and upfront cost involved than buying a property that is ready to go. My short term goal is to buy into enough rentals to support myself and work a part time day job. Long term is to make rentals my only means of supporting myself.

Originally posted by @John T. :

Hey All,

I bought my first property last year, a duplex that I am living in half of. Now in my pursuit of self employment I am looking at purchasing another. I found a foreclosed 3 unit for 48k in a very desirable area, but it requires a lot of work. 25% down and after renovations i'll be looking at 20k, which will provide a net rental income of $1000/mo. It would take me about 1 month to renovate each unit, working part time. 

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I don't understand.  Are you saying the renovations will cost $20,000 so the property will cost $68,000 ( plus closing costs??  Your income then would net $1,000??

How much is each unit renting for?  $650??  Is the property $48,000 + 20,000 renovation?  Are you saying the rent collected is  approx $2,000 and the net rent is $1,000??

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Originally posted by @Barbara G. :
Originally posted by @John T.:

Hey All,

I bought my first property last year, a duplex that I am living in half of. Now in my pursuit of self employment I am looking at purchasing another. I found a foreclosed 3 unit for 48k in a very desirable area, but it requires a lot of work. 25% down and after renovations i'll be looking at 20k, which will provide a net rental income of $1000/mo. It would take me about 1 month to renovate each unit, working part time. 

==========================================

I don't understand.  Are you saying the renovations will cost $20,000 so the property will cost $68,000 ( plus closing costs??  Your income then would net $1,000??

How much is each unit renting for?  $650??  Is the property $48,000 + 20,000 renovation?  Are you saying the rent collected is  approx $2,000 and the net rent is $1,000??

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I'm saying the down payment on 48k is 12k, plus 8k for renovations makes my upfront costs 20k. The net rental income is $1000/mo.

So the cost is $48,000 plus $8,000 renovation + 3 months holding costs and the rent  is $1,000 a month.   Thats almost at the 2% rule.  The renovation cost certainly is low.  Sounds good to me.  Why wait?

Well because of the 3 months that I need to renovate, also my holding costs are 6 months, but thats not a big deal. I found a double down the street for 50k, just needs paint and its net rent is $675, with 12.5kdown, so im probably going to go that route to forgo the 3 month sweat labor.

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