I'm looking to buy my second rental property. My first property is a duplex that I currently live in and have renovated. Purchased for $201k with $40k down. Appraises for $217k and mortgage / rent details are:
- 2/1 - $800
- 3/1 - $950 minimum (although I currently live here)
- payment is $1050 / mo on $161k
The second property is a duplex that is next door. It is in much better shape than my current one, and would need zero renovation. The owner has yet to list it, but I know him and he is asking $230k. If he lists, the opening price will be $247k. It is a 2 unit that is slightly under-rented. I'm pretty sure I could hit the following rents:
- 1/1 - $700 (I could get tenants in immediately)
- 2/2 - $1150
The property has a partially finished basement with one extra room on each side, but I've been told these cannot be included in sqft calculations as fully finished.
Comps for this area in the past year are
- 1/1 & 2/2 sold for $203k across the street
- 2/1 & 2/1 sold for $201k next door (my current property)
- 2/1 & 2/1 sold for $180k two doors down
- 2/1 & 2/1 sold for $245k one street over
General financial information about us:
- no outstanding debt besides our current mortgage
- $80k + $50k income (not including rental income)
- $20k savings
- 1. Is this a decent deal regarding cash flow? The purchase price seems high, but the comps moved really quickly (1-3 days on market), and the appraisals after sale are higher than the sale price.
- 2. Is a feasible option for getting a downpayment taking out the equity in our current rental through a HELOC? We have $40k (downpayment) + $16k (difference between sale price & appraisal) + $10k (renovations).
- 3. Would this limit us from buying a SFH in the next two years?
My cash flow calculations (depending on final mortgage we would qualify for) are:
$46,000 down payment
$184,000 loan @ ~4% = $1175 monthly payment
$1850 rental income - $1175 mortgage - 20% vacancy & maintenance = $310 monthly cash flow
And cash on cash would be roughly:
$49600 cash invested on $3720 annual cash flow = ~8%
I would also account for cap ex depending on your holding period
Unless you're going to be living in one of the units, I would increase your interest-rate assumption to 4.5%. For non-owner occupied properties, you will typically pay at least a half a percent higher interest.
Seems like a fair deal. As stated before I would be prepared for some cap ex in the future. Your numbers seem sound and if your buying it as an investment they will include 75% of the future property's rents as income to help qualify. Not sure about the HELOC, I am currently in the same position as you with my first property being a duplex with almost identical numbers. Have yet to have it appraised though.
The price seems a little steep for being a 1/1 2/2. Also, your potential rents seem optimistic, however I am not familiar with your area so you would know best. Just be conservative with your numbers as you probably know.
Good luck seems like a solid investment for the long term.