My wife and I have wanted to invest for a long time, and we fell in love with a duplex in Rock Island, Illinois. It was built in 1909, and still has a lot of original woodwork. Great tenant on one side, retired military in the best kind of way, and the owner had lived on the other side the previous 13 years. It is in a sub B neighborhood, a few blocks away from a C class neighborhood.
We bought the duplex for under $90K and each side rents out for $750. Thus far we have spent most of the cash flow on repairs. (New electrical panels, treating for termites, plumbing, and bringing the side the owner lived in up to code).
I would love to hear from some other members their opinion on the danger of falling in love with a property, and the common repairs they have run into owning/working on older homes.
Lessons learned thus far:
1. Don't rent to friends or family. My wife got so excited about us becoming land lords she offered one side to a lady we knew from church who was unhappy with her current apartment. She told us she could move in March, which became May, which became June, which became not June 1st but June 30th. Plus she wanted us to make a lot of changes to the current arrangement of the home. We cut bait and helped her find another apartment while we started marketing the property. We ended finding a great couple, but we lost $3K in vacancy waiting for our friend. Lesson, there is nothing worse than when two people think they are doing each other a favor.
2. Leverage is great, but not if it affects your sleep. We put 20% on our first home with some saved money, but also a loan against my 401k (interest is paid back into the account; the only fee is $20 a year). We then bought this first rental property with a home equity line of credit. We have enough saved up in stock index funds to pay off our floating debt in case of a personal crisis. However, having the debt makes us a little uneasy, so we are going to pay off the equity line before acquiring new properties.
3. Contractors are expensive. Thus far I have been blessed with reliable contractors, but I am in a constant state of feeling ripped off. I have found that they will always take a little off their bill with the slightest push back ($50 to $100), but I feel I need to make several more 5am trips to Lowes before I can find some people that I trust.
I would be interested in knowing how much you have spent on rehab for this property and what upgades you are planning for this house?? We always shy away from old houses because of hidden problems. Usually the electrical and plumbing is a cost problem
On the surface $90,000 for the property and $1,500 rent is very good. Depending on how much you need to spend renovating. What condition is the plumbing and roof in and the systems? How much has the electrical upgrade cost?
The electrical had been updated previously (replaced knob and tube wiring). We did spend $2k on new electrical panels. Both furnaces still work but are 20 years old, I received an estimate to install new furnaces for $5k, We also plan on repaving the drive way and sidewalk as there are major cracks in both. I have not received estimates on this yet. Future plumbing issues do worry me, but we have only spent $800 so far on fixing leaks etc.
I also think our numbers also look pretty good at first glance. However, we are planning for no appreciation. I know most people say that, but especially this is especially true in our area. This city has roughly the same population it did in the 1940's, so there is nothing driving prices up other than inflation. We are also paying about $2k a year in property taxes (Illinois property taxes are much higher than they are across the river in Iowa).
What plumbing problems do you usually run into?
I just wanted to say thank you for talking about your duplex property, I found it very interesting and useful.
I'd like to dip my toe into RE investing, and hearing actual stories complete with numbers is very helpful and encouraging.
If you have any further thoughts on investing, landlording, or notes on further properties I'd love to hear them... hopefully being on this thread will notify me of future updates.
All the best,
@Ryan Klemetson The purchase numbers on the duplex were good, until you had all those repairs to do. That's the difference between being a landlord and being a RE investor. I love old homes and I enjoy brining something back to life (especially with great woodwork). Not to criticize, but rather to teach, I would have taken a look at the deferred maintenance and calculated what would need to be done in the next 3-5 years. I would have put together a SOW including the electrical upgrades, plumbing, and roof if need be and reduced my asking price citing these issues. Then taking the first few years of profitability and rolling it into cosmetic upgrades would leave you with a property you could raise rent on and have added value.
I personally BRRR everything I buy. I leave 25% min equity in each property and go buy another. Your CoC returns are then infinite, my ugly old house just became a house people are fighting over, I sleep AMAZINGLY at night because everything aging is new, and its an easy sell when you can show how much went into a property that will make for the next owner to sleep well too!.
Keep up the good work, look for deals where the profitability is the same after a renovation. Fall in love with your investment as a VEHICLE. The job of a vehicle is to get you from one place to another. Is yours getting you to where you want to be? Also, its never too early to create and write down systems. Change as you learn and grow until each deal just becomes too easy.
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