Newbies and need help and guidance.

15 Replies

We have been toying with buying a rental for a few years as cash has just sat. We were ridiculously close but decided against a single family home purchase. The guy we work with owns rentals himself.  He actually bought one of the 5 duplexes in the area we are interested in and said he would have bought them all if he could have.  He came recommended by a coworker who has used him to build themselves a nice side income.  He is a good teacher and patient about explaining the ins and outs over and over. The contractor that built these units and managed them is selling and retiring. They units are all well built and under 10 years old. They are all in fantastic condition and have had long term tenants. 


The guy helping us jumped his rent up a good chunk after purchase as his tenants were no longer on any lease but a 30 day. He had 1 move and the other re-sign. He was flooded with applicants as they are far superior for the price. The previous owner was doing lawn and snow removal and paying for trash and water. He did away with all that as would we. We would raise the rent between 50 and 75 per unit and it would still be well below the areas rents for a  dumpy place. Rents for dumpy rentals are that price or quite a bit higher.With the small jump the rent it would be .9% of purchase price and still low rent for the area. We are not real concerned as these are newer units as far as massive repairs. They are well built and ready to go. The advice was to raise the rent just a bit and get rid of landlord doing lawn, snow and water to keep the current long term tenants. The advice was if you are getting new tenants to go up higher to hit the current area rents. The area is also becoming a very hip area with young adult professionals due to all the growth and fun things now in the down town area. 20 years ago I wouldn't have looked at that area. Both of us actually grew up close to it and that lower end was yuck! The city has sunk millions into making down town a nice place.  A bit further down the hill apartments are going for $1000.

One side rented would pay the expenses if we were to finance. The other side would be pure profit. We could buy one outright. We could pay in full for one until and put 25% down on the other. We are leaning towards the two that are next door to each other if we purchase two. They share a coin laundry in one building. The units could likely be had for less buying two. He really thought we could swing a better deal for all 4 remaining but I'm not willing to go in debt that far. I'm debt phobic and a novice! They are priced to sell.

I am a big safety freak. The idea of financing one unit has me panic a bit. Logically we have a paid for home and the deal would still leave us $60,000 in cash and non retirement investments. I have had the idea of financing with 25-50% down explained to me over and over and how you make a higher % on your investment and have less $ at risk. To me personally I'll take a lower % for less risk and debt. Our cash is making 1% do not doing a thing but making me feel safe.

The plan would be to sink the profits into the mortgaged unit  if we bought two and pay it off as soon as possible. If all goes well we would purchase another rental once that was debt free.

Our home is worth at a minimum $200,000 if one had to sell extremely fast.  We have no debt at all. Dh said worst case scenario we would sell our too big for us home( kids are grown) and move into one of the units if we bought both. I do see his point. However that is not ideally somewhere I would want to live as I'm used to privacy , woods and wildlife.

I'm hoping I can get some guidance from those of you more experienced. I have seen it in black and white and see the great potential but am still freaking out due to the possibly financing one unit. As far as actually being a landlord we have completely rehabbed a home and do have the ability to do some of these things. I also only work 2.5 days a week compared to my spouses full time.  So I do have time. 

I'm hoping some of you with experience can guide me a bit here. It all makes sense on paper. Looks great. I am cool with paying cash for one but freaking over financing the other.

Modify message

Updated about 3 years ago

See bottom post for ROA number

It sounds to me like you are still very scared to make the initial investment.  I have purchased rental homes even in my own city that I have never been to and I dont plan on it anytime soon.  Thats me though. 

Dont be worried to finance, thats how most people purchase homes.  

At some point you are gonna have to get off the fence and go for it, otherwise you will always be watching from the other side. 

Good luck

Im totally fine with purchasing one in cash. Its the mortgage that is the hard part on the second unit. We worked ridiculously hard to be 100% debt free. I need to separate the personal and business part of this. You are right. From the info give does this sound like a good investment?

From all the numbers run if I have a vacancy of 12% $2000 in repairs yearly per unit, no appreciation it is still just under 5% ROI with cash. Your right. Your right this freaks me out but we need to bite the bullet.

This post has been removed.

I used some more of the info on this site. I used 1.5% for keeping the property up and a 12% as a vacancy rate, and costs I expect to incur. Paying cash in full for just one of the property's gives a ROA of 4.1%  Is that worth it?

Bumping this hoping for some insight! 

Like @Curt Davis said, you seem very afraid to take on debt. You even said yourself that you worked so hard to be 100% debt free. Being debt free is awesome, but there are different kinds of debt, in my opinion. Credit cards and car loans are bad debt, and a mortgage is good or neutral debt.

Running a business costs money. Look at landlording as running a business, because that is exactly what it is. View the mortgages on the properties as an expense of running that business. You cannot run a business for free. Mortgage rates are still low, but are going to be increasing. As rates go up, less people qualify for loans, and the rental market looks better and better. 

This is a real estate investing site, so people on this site are going to encourage real estate purchases. What you have is analysis paralysis, which means that you are afraid to take the first step, caught up in the numbers. Read through the forums on rental properties. Check out the blog. Listen to the Podcasts. Throw up an #AskBP to get @Brandon Turner 's attention, then say How do I get over Analysis Paralysis?

You said that these duplexes are much nicer than most in the area and that your friend was flooded with applications. People need a place to live, and will always need a place to live. What is the economic outlook in Eau Claire?  Menard's is headquartered up there, and they are only in like 11 states, if I remember right. Tons of room for growth. You have the Mayo clinic, too. 

Keep poking around BP. If this site doesn't inspire you to become a real estate investor, then perhaps real estate isn't the right place for your money. Ultimately, the decision comes from you. Good luck!

@Mindy Jensen is right, there are good debt and bad debt.

The worst case scenario is just you can't rent out the property for a prolonged period and you need the cashflow to support the property.

Ask yourself: how likely is that?  Do you feel confident that you can at least rent it out quickly at say 100-150 dollars below market per month?

Certain towns can be tough; others can be so simple.  What about your area that you are interested in?

Thanks you very much for taking the time to reply. Eau Claire is a growing area and that area of town is really getting cleaned up and revitalized. It is really the area hip with people  35 and down. Our budget can easily afford the property if no tenants since we are debt free and would be paying cash. I wouldn't want to but I could. if my math is right one side rented at 600 and the other side empty would cover the taxes etc. I feel it is pretty unlikely at least one side of the duplex wouldn't be rented.  At $600 for a newer duplex it is already renting lower  or the same than dumps in the area so that's a draw. 

 We can buy one unit in total cash so there absolutely safety there. I am leaning towards buying one in cash and getting our feet wet and then looking for more opportunities.  I could actually purchase 2 in cash but that doesnt leave me the safety net I want. 

I think your vacancy rate is a bit conservative. I use 8.3%. Or one month per year per door. also I think your cost to maintain is a little high too. If these units are only 10 years old they should be in pretty good shape and easy keepers. i have 100 yr old single family homes that don't take that much upkeep. I do the work myself when work needs to be done though. Point being I think your ROI could be higher then your figures. And as Curt basically said, the first one is the hardest.

My wife and I just purchased our first duplex last Sept. Our area is not on fire economically. We inherited one renter and had to get another. This unit is 30 yrs old and in good shape. Even thought we financed it we are positive cash flow $475 per month. Add tax benefits, Add equity, and hopefully some long term appreciation and I will take that all day long. 

Good Luck and I hope you go for it.

@Michelle S.

I'm in Eau Claire and it took me a while to buy my first rental and I would be more than happy to share my experience with you and let you know some of the people that I've worked with that have been a tremendous help. It is scary but not nearly as scary as you think.

Originally posted by @Garth Gissel :

I think your vacancy rate is a bit conservative. I use 8.3%. Or one month per year per door. also I think your cost to maintain is a little high too. If these units are only 10 years old they should be in pretty good shape and easy keepers. i have 100 yr old single family homes that don't take that much upkeep. I do the work myself when work needs to be done though. Point being I think your ROI could be higher then your figures. And as Curt basically said, the first one is the hardest.

My wife and I just purchased our first duplex last Sept. Our area is not on fire economically. We inherited one renter and had to get another. This unit is 30 yrs old and in good shape. Even thought we financed it we are positive cash flow $475 per month. Add tax benefits, Add equity, and hopefully some long term appreciation and I will take that all day long. 

Good Luck and I hope you go for it.

Thank you for taking the time to reply. We did use higher numbers to see a worst case scenario so you are right. The ROI could be quite a bit higher.

 We met most of the tenants in the units when we saw them. To be honest the majority are not tenants we would want.  Most of them are on a month to month. The unit that is almost flawless is in the worst area of the bunch. It is very nice though.  The rents on all units are too low. The deposits are several hundred below the rent.  Several have hard core smokers and pets. In all but one it would all need to be repainted to re-rent. I don't mind painting.  I do think we would end up starting over with new tenants once the rent was at a level below market but yet profitable. Also once it was metered and tenants became responsible for their own water, trash , yard and snow. 

The landlord and builder of these was there when we saw them all. He very clearly made it known he went with his gut on people and sometimes they didn't pay the rent. He was not shocked at all at the crayons on every wall and the stuff stacked to the ceiling.  Im sure an experienced landlord is not. 

I know we are biting the bullet and buying at least one in cash. We are weighing the pros and cons of each unit. I am heavily leaning towards the unit built in 2010. That is not a great street and but a beautiful until with a huge yard. The rent on that one is also too low but already set higher than the others. I'm leaning towards it as its the newest and flawless as far as repairs.  We are still not decided on financing part of a second unit. One might be just the thing to cut our teeth on and gain experience. 

I do know most people purchase homes with financing. We were pretty methodical after our very first home purchase and have purchased the last two with cash. It seemed to be a great tool to get a real deal with in those two experiences. 

Originally posted by @Omar Parks :

@Michelle S.

I'm in Eau Claire and it took me a while to buy my first rental and I would be more than happy to share my experience with you and let you know some of the people that I've worked with that have been a tremendous help. It is scary but not nearly as scary as you think.

 Thank you! That is very kind of you. 

@Michelle S.

I think I know the duplexes and area you're talking about. Be careful jumping into those, there is a reason they are cheap. That area is pretty rough. I own property downtown but I wouldn't personally buy in that area. Now if you could buy the entire block that might be a different scenario. You won't likely attract good tenants, and have high turnover. Would you feel comfortable in that area at night. Do you plan to self manage?

As for the debt situation, as others have stated there is good debt and bad debt. Leverage can help ROI.

Jason I sent you a message. Yes I plan to self manage. Yes I feel comfortable there at night. However I grew up not far from there and EC is a fairly safe area in general.  I have 1 friend and 1 coworker that rent in that Genera area. Not too much issue back there that I have heard. I would love insight you have on the area. 

Sent you a message. Honestly I'd rather own some of the crap off Birch Street before that area if that tells you anything. just my two cents. 

@Michelle S.

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.