First Time Buyer Advise

12 Replies

Multiple Questions in here.

My girlfriend and I are looking to begin our real estate investing career. We currently rent an apartment and are either considering a Duplex or a single family home. My preference is duplex for the extra income, however, the duplex's in my city (Duluth, MN) are entirely in not the best parts of town. My dream is to buy one of these duplexs and renovate the the side we live in first but the real estate person I am speaking with tells me that the few I've looked at are not worth putting any money into and that I will not get a return on either properties since no one will rent it once it's renovated.

Looking for tips here, is it truly not worth turning a building with decent bones and ugly floors,ceilings, etc. into a nicer property and increasing rent a couple hundred dollars if the building isn't in a wealthy neighborhood? Do I simply buy a single family home in a better neighborhood for now (we plan on moving to the West Coast in the next couple of years after we are married). 

Extra info: Home I'm looking at currently has renters in both floors $1,100 a month in base floor, $1,200 in the top floor. Attic area is partially done (no electrical, plumbing, etc, just the basically the lumber is put down but that could be turned into a one bedroom,kitchen,bathroom rental space as well, but again I was told not to put anything decent in there if I buy it.)

Hi Justin, I hear that Duluth is a good place to invest right now, as you can get cash flow positive deals. 

Most places will be rentable depending on the price. Does you agent deal with investment properties? I do agree that those in crappy parts of town will have higher problems- like non-rent payment, damages, etc. 

Single family homes are easier to resell at a later date. That is where I have focused. 

Gettting an attic completed ends up costing quite a bit- with electrical, permits, architect, heating, insulation, etc.  Make sure you knwo the costs before getting into it. 

Best of luck!

@Justin Teal what's their logic? Did they show you comps that proved you wouldn't be able to add value? Can you offer less than list and build in some upside?

Fixing up properties is how most of us really make money. I'm a buy and hold investor but I always buy properties that need rehab and am able to increase rents along with increasing the value of the building.

What's the price range you're looking in?

@Justin Teal I have had the same thoughts about my local market. Asking local investors and remaining patient will go a long way in just about any market. 

If it just happens that your area doesn't cashflow well with the available duplexes a live in flip can be a great way to build capital for future deals. Instead of selling you can refinance after just one year to speed up your investment journey.  

Good Luck

@Jordan Moorhead Hi Jordan, Absolutley, The logic was that I won’t be able to compete with local apartment complexes as I would be charging about the same rent. I would think that renovating would add at least what I put in as far as the value of the building and that the increase in rent by a couple of hundred would be fine for the area but he disagrees.
@Justin Teal hello. I think it depends on the price and how much you put down. What your monthly expenses will be will determine if it’s worth it for $2300 in rent. If you do this owner occupied you will only receive one of the rents. I did this this year in Tacoma. My first duplex payments are $1680 a month. I was in an apartment paying $1500. The other side of this duplex rents for $1100 so my rent dropped from $1500 to $580. I would check the numbers and see what the amount you would pay in a duplex vs a single family. Good luck.

Hey Justin!  

Yes, the Duluth market is pretty high right now in the single / duplex type homes.  Often the ones worth fixing that will actually net some equity are more in the "unlivable" state - so your realtor is probably accurate on those.  We do a lot of renovations in town, and my experience is if you want to create equity you definitely need to get into a larger project.  

What you might want to look for in town is just something that is an easy project that is undervalued.  I often find gem's that look really ugly but really just need painting, carpet and surface work.  You'll need vision for it, but that might be a good route - you could make decent equity re-selling in a few years being it sounds like you want to move.   Just a thought.

Hey @Christine Kankowski, it was nice to meet Paul last week - glad to see you're looking at Duluth!

Cheers!

@Michael Schraepfer Hey Michael just saw this post now! Thanks for the tips! We ended up purchase a single family for now and are working on getting some equity in it to BRRR when we move into our next home. We have even looked into using Heirloom to manage it once we make that move!