Duplex purchase YES or NO?

Question

I am looking to purchase a Duplex in Springfield MO. It is a really good area for a decent price. My plan is to live in one side and rent the other. Rents in the area are $650 for this type of unit. Both are 2 bed & 1 Bath. Built in 1980 around 900 Sq feet for each unit. I estimate it will take around $10,000 of repairs over the next couple years. It is listed around $140,000. I do not qualify for a conventional or FHA loan because a year ago I became self employed so the best interest rate I can find is around 7% putting around $10,000 down payment. The problem I am running into is finding a property that has decent cash flow.  Wanted to hear what you thought of the deal. Also any suggestions.

Dan S. · Answer

I'm an investor and real estate agent in the Springfield area and if the duplex in on the MLS, I may know which duplex you're referring to.  Multifamily is going pretty high compared to rents in our area and has been high for the last year or so.  We've considered a few and mainly look at cash flow to calculate a cash on cash return after accounting for all expenses.  Cap rates really don't mean anything to us other than a starting comparison tool among properties.  In today's world we've had to consider debt reduction, possible 2% appreciation & cash flow to get a decent return.  Looking through the MLS again this morning as I do each morning, there's just nothing on the market right now that we feel is worth considering. Sometimes not getting into a bad deal is as good or better then getting a decent deal.

Right now you have to look constantly for a property that the numbers work on, whether it's multifamily or single family.

If it's a duplex on the MLS reach out to me before you pull the trigger.

Dennis M. · Answer

Deal sucks . Rent way too low for paying that kinda money and your interest rate sucks . Expect to lose money every month . Best you can hope for is appreciation some day

Koki Agata · Answer

@Sylvia B.

Thanks for that. That's good to know

Sylvia B. · Answer

Springfield has several colleges, but no, it is not a "college town". Springfield is rather spread out, and student rentals are pretty area specific.

Essam Elkady · Answer

Ok Springfield Missouri is very promising since rents are the lowest across United States it has huge room to come up , it is already moving up fast , the deal is great if you can get a loan for 4 percent or less otherwise wait until you qualify for lower interest rates but 7 percent will not work forget it

Anthony Wick · Answer

@Lee Israelsen

In the brief numbers you have supplied, nothing about this deal looks good. Too much money, too low of rent, and bad interest rate. Plus you say it needs work? You cannot make money on those numbers.

Koki Agata · Answer

Hello Lee,

I am not sure where exactly in Springfield the property you are talking about is located, but my wife went to a uni in Springfield, and I visited couple of times, and I am under the impressions that it is more or less a college town? So although the rent seems low, and does not meet 1% rule even after you rent out both units, perhaps you can rent it out to students per room basis, and maybe then it might cash flow?

I think as long as numbers work after you rent out the second unit, it works as a house hack just fine in my opinion. The rent from one unit may not cover the mortgage completely, but it would significantly lower your most likely largest monthly expense. I would just make sure that it won't put you under water when you move out.

I agree with others though that 140 seems too high for the rent it gets.

Good luck!

Cheers.

Bjorn Ahlblad · Answer

Cap rates, market etc aside If you are looking for cash flow there is none here.

Jeff Kobernus · Answer

Hi Lee,

Here is something to think about.  How long do you intend to keep the property?  0-5 year or 6-10 or longer?  If you are 0-5 my only concern is getting my money back. Doesn't have to be perfect I need to break even at a bare minimum because its short term.

If I am 6-10 or longer I am not as concerned regarding some of those numbers. Your paying down debt, if you get a modest small appreciation over the course of 10-15 years it won't matter.  You are taking on a higher interest rate than normal BUT the reality is you can refinance out of that loan as soon as you have the minimum requirements to do so with a lender.  So your short term high interest loan shouldn't be a huge factor AS LONG as you are comfortable with the payments.

Heres a phrase to have your agent ask the selling side on the property (THIS IS DEPENDENT ON HOW MANY DAYS ON MARKET) "Good evening Mr. Seller we were inquiring about so and so property and my clients love the property.  We have identified two but this is our top choice but our budget is closer to $120k is that something even worth submitting in writing in your opinion?  Let the agent speak and they will give you all the information you need.  Seller in my experience is not dropping $30k. Potentially 5-10 MAYBE 15.  Anything else will be highly unlikely.  Start with that conversation. IF THEY SAY DON'T WASTE YOUR TIME then my next question is.  "Okay thank you for the information.  If I could push him up to $125k and I don't think he would do it, but do you think that is something your seller would entertain?"  IF he denies it then you know $125k is not the bottom.  Always better to submit and offer WHEN NO ONE ELSE IS NEGOTIATING with a tight response time.

None the less, I did a guess on your mortgage with 7% interest property taxes insurance ect and Im getting $1100. Thats solid in my opinion.  Your mortgage with rent is now $500 or less. When you refi your payment would likely drop below 900.

Lee Israelsen · Answer

I doubt the seller would accept $110,000, but it never hurts to ask. Last time it was on the market for less than a week before it was under contract.

Duplex purchase YES or NO?

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