Please see my deal below.
Duplex side by side - 2 bed 1 bathLocation: Lincolnton, NC. 40 minutes from Charlotte, NC
First property purchase. Would live in one side and rent the other. Current rents are $650 & $515 on a month to month lease. I’m estimating a $1400 mortgage payment.
I would appreciate any advice the community might offer, or questions I have not considered. I do want to ask if anyone has been in a similar situation where the current rent of one rental does not cover the cost of the mortgage? I understand the management efforts that come along with this also. Any thoughts BP?
Hey @Jorge Rosales ! Is there any room to raise the rents, or are these market value rents? This would be a negative cashflowing situation, where you'd still want to account for maintenance, vacancy, capex, etc. in the numbers which would push your expenses even higher than the $1400. If you plan to live there for an extended period of time and it would lower your current cost of living that would be an improvement, but this would be a negative cashflow investment and I'd personally pass. Would you be able to put a larger downpayment down to lower the mortgage payment? Maybe your goal isn't necessarily to cash flow and it's in an area where you anticipate high appreciation?
I agree with Luke, negative cash flow is a no go for me. Unfortunately in our area the MF homes are very hard to come by. Is there any value add so you could refinance out of some of it? Or increase rents? Happy to discuss on the phone if needed.
@Luke Trovinger Thanks for the reply. Like you and @Pieter T Van Zyl mentioned negative cash flow is a pass. It would be tough to rely on appreciation in this neighborhood/part of town (high rental area). Although it is growing. I believe any value add could be done to the kitchen cabinets, appliances, flooring, and adding a fence. Would this be possible to reach market value which is could be (850-1200) for 812sq ft?
I appreciate your feedback.
@Jorge Rosales I think it depends how you look at the investment. My wife and I bought our first duplex last year. The price was $255k for a 20 year old, 3 bed 2 bath, 2 car attached side by side duplex. When analyzing the deal, I was looking at what we could do in order to get the other side's rent as close to the mortgage as possible. Because of this, we put 20% down, which gave us a monthly mortgage of around $1,242. I'm not saying this was the smartest thing to do, because we put a large chunk of cash down, but the tenants pay $1195/month, which means it costs us $42/month. This enabled my family and I to move to a larger place that needs little maintenance, in a nice part of town, and save money even faster than we were before. It is worth around $275k, and we plan on making some minimal improvements when the tenants leave, and increase rent to around $1250-$1300. When we move, we will get another $1200-$1300 for our side in rent, and when the duplex is eventually paid off, it will gross $31k/year. Yes there will be expenses, but I'm thinking long term.
I wanted to make investments that would slowly cover my family's costs of living every month. The largest cost was rent/mortgage. The next to check off the list will be utilities, then groceries, etc. Income coming in vs. expenses going out, the ole Rich Dad Poor Dad outlook. There are a lot of factors. Like Luke said, maybe you utilize a larger down payment. Maybe you can make some improvements and increase rent, and slowly improve the side you're living on while your living there (which is what I'm doing).
Hopefully I was able to add something that might add value to your decision process.
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