How much to risk

Question

I am looking to buy my first property which will be a duplex. I'm seeing two that I like, one is 150,000 and the other 160,000. They should cash flow around 200. This seems like a lot of money to borrow and that it will take so long to pay off. Is it better to buy cheaper with the intent to pay off the mortgage fast? Or do you not even factor that in.

Jerry Kisasonak · Answer

I could be wrong, but it seems like you'd be paying retail for this property. To eliminate risk, we've always bought properties well below their intrinsic value. Then if the market drops or if you need to liquidate, you can get out and still make money - or worst case break even.

Chris T. · Answer

@Bill E.

cheaper doesn't mean it's better.

Use the calculators on BP / make sure you factor in other expenses like vacancy / CAPEX etc

https://www.biggerpockets.com/real-estate-investme...

Use a BRRR strategy if you can - search for it on the top RHS - there are a lot of articles about it. If you can recycle your money over and over again, and you feel comfortable with leverage, you can grow your portfolio very quickly with the right properties.

Meghan McCallum · Answer

Bill, don't know if you can get the same #s I can get where I'm at, but I like to get $1000 per $70k I spend on a property. I set aside about 32-35% for reserves and I still like to finance and have my cashflow greater than $100 per door.

Now, investors all buy for different end games. Are you looking to buy for cash flow, long term buy and hold, buy to sell and buy bigger in 5-10 years?

What your goals are should determine where you start. Pittsburgh is supposed to have some great investing opportunities. Hook up with some more experienced local investors who like to chat.

Just remember never to fall in love with your investments, they are vehicles, their purpose is only to get you to where you want to go. :)

Bill E. · Answer

Property is located in Penn Trafford

Bill E. · Answer

@Anthony Angotti

Property is located in Penn Trafford

Anthony Angotti · Answer

@Bill E.

First I agree with the poster who mentioned using the calculators on here to make sure you have calculated all of the expenses. You can look up your school and property millage rates to get an accurate assessment of taxes. I'd also take at least 10% for each of the expense categories in the calculator unless you have accurate numbers to base them on.

I also agree with @Jerry Kisasonak that this property seems very close to retail. Where is it located?

Jay Belcher · Answer

Gotta know the numbers!

If you're talking $200 cash flow after 30 year mortgage is paid that is not good. But if you're talking $200 cash flow after 15 year mortgage and 5% vacancy and 10% repairs and taxes and insurance and 10% management and on and on - then that's a different story.

It sounds expensive though - just from what you've said. It'd be a different animal if it was seller financed, for example.

Jerry W. · Answer

@Bill E. it is impossible for us to give you good advice without having the numbers.  Even then most of us will not know your market well.  If you give us information like how much money down, how long you finance for, interest rate, current rent prices for the property, what market rent prices should be for it, are they both in the same condition, the same age, etc, then we can give you better advice.  If you are doing a 30 year loan and you cash flow $200 a month for both combined that is probably not good.  If you cash flow $200 per unit with just a 15 year mortgage that is pretty good.  When you say cash flow you probably mean mortgage payment, taxes and insurance, how much are you setting aside for capital expenditures, regular repairs, vacancy and management fees?  The deal you describe could be very good or very bad depending on that information.  Take the time to look at other posts to see how they did their numbers.  Good luck.

Thomas S. · Answer

Its a rental property, you do not want to pay it off as long as it cash flows. Once you have built up equity take it out and invest in another. Monthly cash flow pays for your lifestyle (and your bills) not equity.

The cash flow however is very low on these unless there is a way to increase rents  significantly or reduce expenses.

How much to risk

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