Deal or no deal?

6 Replies

I am looking at a property that is in an excellent neighborhood and the upkeep is really well done. It does need some interior updating but nothing I can't do myself with my dad. 

Here are the details....

Price - $300,000 ( seller absorbs closing costs 4%) 

Mortgage: $1789 roughly. 

Potential rent: 2,100/month ( I'm going to "house hack" in the smaller unit that rents at 900 per month)

Expenses: $175 for water per month. 

This is what I think a great market and potentially a good rental increase in the coming years. There is only 1 property for sale in this area as well. I looked at comparables and they range from 325,000 to 350,000 for the same type of duplex. 

What do you guys think about this deal. I'm making an offer to check it out tomorrow. 

As well, the 2% rule is non existent in my real estate market. Your lucky to get 1%. The CAP rate is roughly 5-6% and that's pushing it in my area. So with that in mind, what do you think I should look out for after I offer?

(I'm offering 295k) 

Some one once told me "you will never go broke buying a duplex" is a great deal? Probably not but it's not a bad deal. Do it!

@Chad Duncan  If you want 2% but have to settle for less than 1% near where you live, hey, why not invest elsewhere?

The numbers don't look like a deal to me. I would never recommend RELYING on "potentially a good rental increase in the coming years" when doing your calculations, but I would recommend being conservative in your NET rent expectations (ie. rent minus LOTS of expenses, to the tune of, what was that rule of thumb again: 50%!?). Yes that's right, 50% (but if those expenses end up being on average a lot less, you should THEN consider yourself fortunate, but should be carefully considered initially)! So, you mentioned that you want to forego $900/m rent to live in one. Does that mean you are paying more than that now, and so would therefore be saving some money? Also, once you do live there, does that mean you will be receiving $2100/m minus $900/m, or, does it mean that if you didn't live there you would be getting $3000/m? Either way, my rough calculations tell me that you will be in negative cash flow territory from day one, with no assurances of anything to change that for the better any time soon. Or am I missing something?  Cheers...

@Brent Coombs  thank you for your post!

It is -900 for me living in it. I would be saving about 700 a month by living there.

@Chad Duncan  What you just said means that by living in it, you will be an EXTRA $200/m out of pocket on top of the already negative cash flow from the other unit!  Even worse than I thought! Ouch! You get my drift...

Yeah. I found another place that looks promising. I will post later when I find more out.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here