West Sacramento, CA · Member since 2016 · 4 posts · 1 vote
Hello happy Saturday, so I'm newbie to Real Estate investing. I'm currently in the process of buying my first deal it's a Duplex here is some details. Price is $250,000 one side has 2 bed 1 bath and other side has 3 bed 1 bath. The Duplex is currently has both sides being rented for $800 each bringing in $1600 each month. My mortgage payment will be around $1,100. I know I can probably raise the price of the 3 bedroom side at least another $100. Please any Advice.. is this deal good.? I'm located in California
A few miles from downtown tells me nothing. It could be a fantastic deal with under market rents or it could be terrible. Six blocks can be a $100k swing in many parts of Sacramento.
@Erick Arauza Its a lot of other factors that goes into this other than the rents. What are the expenses, taxes, cap ex? You will need to find out what it will cash flow for as well. BP has calculators for this but you have to be a PRO member.
You will likely break even or lose a little cash each year. If that's fine with you and you are looking to pay this off and have the income stream in retirement or are banking on a lot of appreciation (unlikely in Sacramento for this type of unit) you're on the right track.
Without knowing the area and what the tenants are paying its tough to say. On paper it doesn't look that attractive to me. Just doing a quick mls search I see cheaper duplex's with higher rents.
Erick, from some quick calculations, it looks like you're going to break even every month on this deal. You need to factor in repairs, vacancy, Capex, insurance, and property taxes into your monthly expenses along with the mortgage. I would say either negotiate a much lower price or move on.
So agent tells me that within the $1100 payment insurance and property taxes are already included right the the Duplex is 100% occupied and it will be continue to be if I buy the deal. I'm totally new to this but looks like this is not the best deal according to a few of you guys.
So agent tells me that within the $1100 payment insurance and property taxes are already included. The Duplex is 100% occupied and it will be continue to be if I buy the deal. I'm totally new to this but looks like this is not the best deal according to a few of you guys.
PITI Payment of $1100 only makes sense if you are putting down 25% at a rate of about 3%? (Or maybe more down with a higher rate)?
Be sure the property tax estimate is based on YOUR purchase price, not the prior owner's assessed value!
Are you figuring in the risk factor if you are using an adjustable loan product?
What rate of return could you get on your down payment if invested elsewhere?
The market has been hot here for a few years now; we may indeed see further appreciation but without stronger and more consistent employment numbers, and assuming rates will be increasing, I would assume appreciation to be generally moderate over the next few years. I may be conservative but I'd be hesitant to go into something with a monthly net loss counting only on appreciation. Run your numbers carefully.
Also, even though the units are both rented now, it is foolish to assume they will always be occupied. Apply a typical vacancy rate for the neighborhood to CYA.
@Erick Arauza Hi there Erick, happy to see some active investors! As for your deal, I do agree with what the others are saying about it. However, I think that there is a lot of information missing to rate the deal effectively. There are a few financial rules of thumb such as the 2% rule and others that are good hoops to force your deal to jump through before digging in deeper. They are all over BP. Regarding this duplex, if it's a cut and dry type of deal, it doesn't look too promising. However, all sorts of deals have interesting quirks, unique revenue opportunities, etc. I wouldn't back away just yet, but I would also take the opinions of BP members very seriously. You should think about adding many of the details, I know there are great members that will put great amounts of time into helping you.
I would be careful, I'm looking into buying multi-family's in the area too. I've been analyzing my but off and the vast majority are not good deals, in fact they all lose money. I would re check the numbers, and try to negotiate a better deal. I wouldn't count on the the previous owner putting good tenants in, often they put anyone in so they can sell the property. You should be factoring in taxes, insurance, repair costs, capital expenditures, landscaping, and property management. Someone said it before; I would look in the general area and compare rent rates to confirm if the rents match the area. You want it to cash flow
@Carrianne Mucho Great insight. I have a question for you, what employment data do you look at to gain insights on the Sacramento area? I'm interested to learn what sectors, besides the State, are high employers in the area. Feel free to PM me, if needed.
Have you thought about investing in other states? There are several duplexes for sale around me in Georgia for $100K or less that would rent for around $750 - $800 each side. That's a much better deal than $250K. I would be buying these myself but I don't have the down payment cash.
Embert Madison jr EDD reports unemployment rates monthly on their site. Useful info. Sacramento is actually outperforming the rest of the state however, the U6 numbers are what concern me at this point (discouraged workers). I haven't found U6 reported for local markets but if you find it, let me know!
Construction has historically been a big industry in Sacramento (except in the peak of the recession) in addition to the service sector.
Stagnant wage growth is also a concern. Wages cannot increase significantly until more of the discouraged and under employed workers can find full time jobs. The U6 numbers reflect under-employed workers...ie; part time when they used to work full time. (über drivers? :)
Without pressure on employers to increase wages, the current appreciation rate (prices and rent rates) is unsustainable.
Gov Brown has proposed legislation that may address the under supply of housing in California.
Erick, my first duplex brings in the same amount of gross rent you mentioned, and I paid one third of what you're looking at. I'd run the numbers through the BP calculator.
The 2% rule may not be applicable in California, but he is closing in on the .5% rule which is scary. $1600 in gross rents to cover $1100 monthly mortgage payment would scare me away. Other expenses...
10% property management
5% capital expenditures
8% maintenance
8% vacancy
With those numbers he would be breaking even monthly. Maybe his costs are half of that and then he is making $300 per month on a huge investment. Maybe he is betting on appreciation, but that is always a bit of a roll of the dice.
Good job running numbers. I would let this deal pass and analyze a few dozen more. Then you can see how it compares in the community where you are looking. You might also network with others on BP and at a local meet-up to see what kind of numbers they are getting.
With these large amounts of money, you want to get into the game, but you don't want to make a big mistake on your first one.
It's great to have all this responses from all you pros out there. I really appreciate it. So to answers a few questions here some more data.
The Duplex will be managed my wife and I.
The Duplex does not need a whole lot of maintenance because it only has a small yard in front.
The plan is to put down 30k.
The Duplex is located within a few miles of downtown Sacramento/old Sacramento and lets keep in mind the new Kings stadium is being built.
The tenants have currently being there for 1 year and a half year and are planning to live there If I close the deal.
The tenants take care of the little landscape work.can somebody tell me what this deal would need in order to be an attractive deal. If somebody can run numbers for me I would appreciate it.
Usually with traditional financing if you aren't living in it ups have to put down 20% which is 50,000. With 30k down that's roughly 12% down and with that I'm getting $1150/m with principal and interest. Factor in property tax and insurance and your at roughly $1600/m not factoring in maintenance or utilities. I wouldn't pay over $200k if I was putting 20% down. Even with 200k purchase price is be banking on rental increase and appreciation over time and the hopes I can keep it for 20+ years.
I'd love to show you my calculations, but I have a quick question. How are you paying PITI of only $1100? I'm assuming this is FHA since your down payment is less than 20%. I'm getting $1450 as the monthly PITI with my calculator.
How can anybody give advice on the duplex purchase without knowing the address? They can not look up comps or rents? A person out of state can not really give advice because the CA market is so much different than other markets where they can find duplex's at 100k or less. If you get advice from someone ask them how many duplex's they have owned before you take their advice. good luck with the purchase.
A few miles from downtown tells me nothing. It could be a fantastic deal with under market rents or it could be terrible. Six blocks can be a $100k swing in many parts of Sacramento.
As a newbie, it is imperative that you learn how to run your own numbers. Then talk to other investors and share your assumptions with them and begin a dialogue. Asking someone else to run your numbers is scary. Brandon's begginers guide is a great resource to learn how to analyze deals on your own. Learning the fundamentals is vital for long term success.