Duplex Analysis - Cincinnati, OH: 2 property options

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Duplex Analysis - Cincinnati, OH: 2 property options

Account Closed
New to Real Estate · OH/TN/FL · Member since 2016 · 135 posts · 35 votes

Hi BP! 

I'm a newbie looking to make my first purchase: a duplex. I'm planning to use Navy Federal Credit Union for financing with a 0% down VA Loan (my husband is Active Duty Navy) and house hack while working F/T. The analysis however does not include house hacking as I'm focused on what this will look like 12+ months from now when we move out. This is my first time posting an analysis, so please be gentle...all constructive critiques welcome of course!

Both duplex options are located in the "up and coming" Pleasant Ridge neighborhood in Cincinnati, OH.  Thoughts on my numbers/missing anything? Suggestions? Would you do either deal or should I keep looking??

I'm definitely still reading, listening, learning as much as I can everyday so if I totally goofed up something, please advise! Thanks!!

Option 1, 1/1 & 1/1

Mortgage Loan 84,000

Loan Interest 4.5%

Term 30 yrs

Potential Rental Income 12,600 (550 + 500)

Assumed Vacancy, 8% 1,008

Gross Operating Income 11,592

Property Taxes, Est. 2.5% 2,100

Insurance 450

Mgmt Fee, 8% 1,008

CapEx, 10% 1,260

Total Expenses 4,818

NOI 6,774

Annual Debt Service 5,229

CF Before Taxes 1,667

Monthly Income per unit, pre tax 69.44

Option 2, 2/1 & 1/1

Mortgage Loan 120,000

Loan Interest 4.5%

Term 30 yrs

Potential Rental Income 16,440 (745 + 625)

Assumed Vacancy, 8% 1,315

Gross Operating Income 15,125

Property Taxes, Est. 2.5% 3,000

Insurance 450

Mgmt Fee, 8% 1,315

CapEx, 10% 1,644

Total Expenses 6,409

NOI 8,716

Annual Debt Service 7,296

CF Before Taxes 1,419

Monthly Income per unit, pre tax 59.14

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William Walker
Investor · Wilmington, NC · Member since 2016 · 211 posts · 262 votes
9y
Originally posted by @Ralph R.:

@William Walker  . You keep referring to risk. Can you explain what risk to the landlord is there when   the bank has financed 100% of it??  I'm not seeing that either.

The risk is that she has a major property repair, has a decline in the property value, or has any of the tenants that people post about on this site every day.  It's the same risk that is taken on with any investment property.  I don't understand how you don't think there is any risk with this or any property.  One of the things to make the reward worth the risk is to have the property cash flow.  By not being able to see any money out of the deal for a very long time while possibly having to sink money into the property is not what most first time investors would see as ideal. 

I can get a 100% financed property as well through the VA, but I'm not going to go grab just any property because someone else is financing it. If I had plenty of investment properties with positive cash flow, no limit on VA loan amounts, and didn't want any money out of the deal for 5-10 years it would be much more enticing. Most investors use funds from their first property to fund future deals. This investor wouldn't be able to do that and I think it would stunt their long term investment possibilities.

Again, I appreciate your post and the civil discussion.

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  • Account Closed
    OP
    New to Real Estate · OH/TN/FL · Member since 2016 · 135 posts · 35 votes
    9y

    I will certainly thank him for his service @David Bermanski and I agree, appreciation may or may not happen - my analysis definitely does not speculate on it though. I've heard a few local investors say that it is considered the next "it" place; only time will tell. I have decided that for what I'm looking for, neither deal here makes the cut. Thanks for solidifying that, as well as the rest of the people on this thread! I was excited but the numbers simply don't pan out.

    0Reply
  • Ralph R.
    Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
    9y
    Tiara Stewart-Cannon Ok I didn't read every post on here but of the ones I read everybody seemed to overlook 1 thing. NO DOWN PMNT. Basically the first posters are telling you that you should pass up a free 50 dollars a month per unit or 100 dollars a month when both sides are rented. What's that going to be 5 years down the road as rents go up? And for free?? remember it's 0 down payment. What they are saying is correct if you laid 20% down payment out of your own pocket that would greatly reduce your payment and increase your CF. one investor gave you an ROI. I dunno where he got that number. Your investment is 0. The number is infinite. You want to remember it is extremely difficult to find a 100% leveraged property that will cash flow. I think you did very well to find 2 that would do it. I am assuming your numbers are all close to real numbers. RR
    1Reply
  • William Walker
    Investor · Wilmington, NC · Member since 2016 · 211 posts · 262 votes
    9y
    Originally posted by @Ralph R.:

    Tiara Stewart-Cannon Ok I didn't read every post on here but of the ones I read everybody seemed to overlook 1 thing. NO DOWN PMNT. Basically the first posters are telling you that you should pass up a free 50 dollars a month per unit or 100 dollars a month when both sides are rented. What's that going to be 5 years down the road as rents go up? And for free?? remember it's 0 down payment. What they are saying is correct if you laid 20% down payment out of your own pocket that would greatly reduce your payment and increase your CF. one investor gave you an ROI. I dunno where he got that number. Your investment is 0. The number is infinite. You want to remember it is extremely difficult to find a 100% leveraged property that will cash flow. I think you did very well to find 2 that would do it. I am assuming your numbers are all close to real numbers. RR

    $50 / door is not worth it. Especially for a 120k property! At some point there are going to be some expenses such as.....well....anything. And one, literally one, decent repair will knock out years of earnings. Lets say the PM fee ends up being 10%. Then what's her return? The $50 a door isn't "free" and I think it's very foolish to approach it with that attitude. Any property comes with risk even if it is acquired with 0 down. To eat up 1/4 of her VA loan potential for $50 is not a good investment.

    It's also frustrating to have someone jump into a 1-2 page post and say "I didn't read every post"...but here's my opinion.  Imagine walking up to a conversation and saying "I didn't listen to what any of you said but here's my opinion".  I don't mean that as a personal attack, just frustrating to read.

    0Reply
  • Ralph R.
    Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
    9y

    @William Walker ok so now I read all the posts and nobody mentioned it and I think you still missed it too. If she has zero down payment her payment is 604 (example 2) a month. ROI is infinite if she puts 20% down pmnt (pretty much standard with a conventional loan) then her payment is 486 a month. That lowers her Annual debt service 1464 a year. Her ROI is then based on her investment of $24000. That adds a bunch to her cf On example 1 it lowers her debt service 1144 a year same thing goes here too. You guys are using numbers you read about using partialy leveraged properties and trying to compare it to a fully leveraged property. I'm saying it's pretty tough to find a 100% leveraged property that will cash flow very much. RR

    1Reply
  • William Walker
    Investor · Wilmington, NC · Member since 2016 · 211 posts · 262 votes
    9y

    Thanks for reading the previous posts. 

    She doesn't have to put 20% down. It's a VA loan which is 0 down (but I believe there are some fees and I'm not sure she calculated that in), so she could put any % down that she wanted to. I agree that you get infinite return if you put no money into it and have a tenant pay the mortgage.

    I personally would not want a property and all the risk that comes with it while not having any real positive monthly cash flow.  She will only be able to get money out of it either when she refinances it after getting over 20% equity, when she sells it (hopefully), or when the mortgage is paid off in full after presumably 30 years.  That's a long time of risk with no reward especially for a first investment property. 

    I get what you're saying, it makes sense and I appreciate your post.  I just don't think it's a good deal for a first investment property.

    1Reply
  • Ralph R.
    Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
    9y

    @William Walker not many will be good deals using 100% financing. Nobody is very anxious to lend 100% on any deal. If you could do that you wouldn't be an investor. You would be a real estate buyer and you could make any property work. If you've had rentals very long you understand everything is subject to change. Rents go up expenses go up and also in my area multi family properties tend to cf a little less than SFR. You keep referring to risk. Can you explain what risk to the landlord is there when the bank has financed 100% of it?? I'm not seeing that either. I think she found 2 properties that will cf or damn close to it for low or no risk to herself (if her numbers are right) and that's pretty darn good for the first time out of the chute. RR

    0Reply
  • Ralph R.
    Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
    9y

    @Account Closed  See above post

    0Reply
  • William Walker
    Investor · Wilmington, NC · Member since 2016 · 211 posts · 262 votes
    9y
    Originally posted by @Ralph R.:

    @William Walker  . You keep referring to risk. Can you explain what risk to the landlord is there when   the bank has financed 100% of it??  I'm not seeing that either.

    The risk is that she has a major property repair, has a decline in the property value, or has any of the tenants that people post about on this site every day.  It's the same risk that is taken on with any investment property.  I don't understand how you don't think there is any risk with this or any property.  One of the things to make the reward worth the risk is to have the property cash flow.  By not being able to see any money out of the deal for a very long time while possibly having to sink money into the property is not what most first time investors would see as ideal. 

    I can get a 100% financed property as well through the VA, but I'm not going to go grab just any property because someone else is financing it. If I had plenty of investment properties with positive cash flow, no limit on VA loan amounts, and didn't want any money out of the deal for 5-10 years it would be much more enticing. Most investors use funds from their first property to fund future deals. This investor wouldn't be able to do that and I think it would stunt their long term investment possibilities.

    Again, I appreciate your post and the civil discussion.

    2Reply
  • Ralph R.
    Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
    9y

    @William Walker so if someone puts a large enough down payment in the property to make it cash flow than your saying they have less risk?  Sorry I can't see that either. The investor that is trying to use cash flow to reinvest will not grow very fast. The term cash flow is misleading in the first place.  If you invest 30k in a property and the thing pays you back at 500 a month (pretty good cf.). It's still 5 years to get your 30k back. So in reality your not getting cash flow your getting your own money back at 500 a month. You still have all the risks you mentioned and if one occurs it jus prolongs the length of time to get your money back. If there is any inflation or the market goes up then that 30k won't buy as much house as it did the first time.  Cash flow does nothing to lower risk. It's simply that. Cash flow. Due dillegance and proper management do lower risk. Vetting tenants, regular inspections looking for cap-x expenditures, pre purchase inspections also mitigate risk. A pro active maintenance program mitigates risk. Nobody controls the market but if your personal financial house is in order you set up some reserves for this. Relying  on cash flow to cover these things won't be very successful RR

    1Reply
  • Account Closed
    OP
    New to Real Estate · OH/TN/FL · Member since 2016 · 135 posts · 35 votes
    9y
    Originally posted by @Ralph R.:

    Tiara Stewart-Cannon Ok I didn't read every post on here but of the ones I read everybody seemed to overlook 1 thing. NO DOWN PMNT. Basically the first posters are telling you that you should pass up a free 50 dollars a month per unit or 100 dollars a month when both sides are rented. What's that going to be 5 years down the road as rents go up? And for free?? remember it's 0 down payment. What they are saying is correct if you laid 20% down payment out of your own pocket that would greatly reduce your payment and increase your CF. one investor gave you an ROI. I dunno where he got that number. Your investment is 0. The number is infinite. You want to remember it is extremely difficult to find a 100% leveraged property that will cash flow. I think you did very well to find 2 that would do it. I am assuming your numbers are all close to real numbers. RR

    Though I am still new to RE, this is what I was thinking. If this is CF without a down payment, then as the principal is paid off over time and the rents either stay constant or increase, CF would increase. While I do understand that these were not slam dunk deals, I also am intent on utilizing the VA benefit and not putting a down payment. I am currently looking for better deals though, nonetheless! Thanks for joining in Ralph!

    0Reply
  • Account Closed
    OP
    New to Real Estate · OH/TN/FL · Member since 2016 · 135 posts · 35 votes
    9y

    Thank you very much @William Walker and @Ralph R.. Both of you have brought up many good points for me to keep in mind and for me to consider when analyzing every deal going forward! I definitely understand that being 100% leveraged is not ideal and it is not the plan going forward. I also appreciate the sentiment that I should not just go grabbing any ole' property just because it will be 100% financed;  that is a very important piece of advice for me to keep forefront in my mind! I think another thing that influences this a bit is the house hacking part. I've found MUCH better CF deals in and around Cincy; however, not necessarily in areas I would feel comfortable living for a year...

    Either way, you guys rock for giving so much feedback! Thanks!! 

    1Reply
  • Robert Arnold
    Investor · Los Angeles, CA · Member since 2016 · 15 posts · 3 votes
    9y

    @Tiara Stewart-Cannon we are Cincinnati investors as well. Just bought a multi-family property there this month and it definitely has better returns than what you have listed so it is out there! We found great property management at 9% and interviewed 3 refereed companies. None were at 8%. Good luck!

    0Reply
  • Account Closed
    OP
    New to Real Estate · OH/TN/FL · Member since 2016 · 135 posts · 35 votes
    9y
    Originally posted by @Robert Arnold:

    @Tiara Stewart-Cannon we are Cincinnati investors as well. Just bought a multi-family property there this month and it definitely has better returns than what you have listed so it is out there! We found great property management at 9% and interviewed 3 refereed companies. None were at 8%. Good luck!

     Congrats on your new investment! How did you finance it, if you don't mind sharing? The main challenge is finding CF in a 100% leveraged property; however, I'm definitely determined to! I've certainly up'ed my percentage to 10% for PM to be on the safe side, thanks! 

    0Reply
  • William Walker
    Investor · Wilmington, NC · Member since 2016 · 211 posts · 262 votes
    9y
    Originally posted by @Ralph R.:

    @William Walker so if someone puts a large enough down payment in the property to make it cash flow than your saying they have less risk?  Sorry I can't see that either. The investor that is trying to use cash flow to reinvest will not grow very fast. The term cash flow is misleading in the first place.  If you invest 30k in a property and the thing pays you back at 500 a month (pretty good cf.). It's still 5 years to get your 30k back. So in reality your not getting cash flow your getting your own money back at 500 a month. You still have all the risks you mentioned and if one occurs it jus prolongs the length of time to get your money back. If there is any inflation or the market goes up then that 30k won't buy as much house as it did the first time.  Cash flow does nothing to lower risk. It's simply that. Cash flow. Due dillegance and proper management do lower risk. Vetting tenants, regular inspections looking for cap-x expenditures, pre purchase inspections also mitigate risk. A pro active maintenance program mitigates risk. Nobody controls the market but if your personal financial house is in order you set up some reserves for this. Relying  on cash flow to cover these things won't be very successful RR

    Let me ask you this in all seriousness.  Would you 100% leverage a 2 door, million dollar property to get $50 a door?  What about 2 million dollars?  If there is no cut off for you personally as an investor, then stick with your plan of leveraging 100% for basically no cash flow.  If you think, no, I wouldn't leverage that much, then what is your cutoff?  And why would you not leverage that large of a property?  Maybe we just have different financial reserves/stability and that's why we view this investment differently. 

    For me the answer is no, I wouldn't leverage that much for so little cash flow.  And I wouldn't leverage 100% on either of the properties that are presented here.  Maybe you would.

    0Reply
  • Ralph R.
    Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
    9y

    @William Walker  I'm not going to argue with you William. Your groping here not comparing apples to apples. Based on $120000 investment a 100 dollar return per mo is a 1% return. A 1% return on 2 mil is $1667 dollars a month. Pure profit. With no money in the deal and the property paying all expenses what would you do?walk away??  RR

    0Reply
  • Account Closed
    OP
    New to Real Estate · OH/TN/FL · Member since 2016 · 135 posts · 35 votes
    9y
    Originally posted by @William Walker:
    Originally posted by @Ralph R.:

    @William Walker so if someone puts a large enough down payment in the property to make it cash flow than your saying they have less risk?  Sorry I can't see that either. The investor that is trying to use cash flow to reinvest will not grow very fast. The term cash flow is misleading in the first place.  If you invest 30k in a property and the thing pays you back at 500 a month (pretty good cf.). It's still 5 years to get your 30k back. So in reality your not getting cash flow your getting your own money back at 500 a month. You still have all the risks you mentioned and if one occurs it jus prolongs the length of time to get your money back. If there is any inflation or the market goes up then that 30k won't buy as much house as it did the first time.  Cash flow does nothing to lower risk. It's simply that. Cash flow. Due dillegance and proper management do lower risk. Vetting tenants, regular inspections looking for cap-x expenditures, pre purchase inspections also mitigate risk. A pro active maintenance program mitigates risk. Nobody controls the market but if your personal financial house is in order you set up some reserves for this. Relying  on cash flow to cover these things won't be very successful RR

    Let me ask you this in all seriousness.  Would you 100% leverage a 2 door, million dollar property to get $50 a door?  What about 2 million dollars?  If there is no cut off for you personally as an investor, then stick with your plan of leveraging 100% for basically no cash flow.  If you think, no, I wouldn't leverage that much, then what is your cutoff?  And why would you not leverage that large of a property?  Maybe we just have different financial reserves/stability and that's why we view this investment differently. 

    For me the answer is no, I wouldn't leverage that much for so little cash flow.  And I wouldn't leverage 100% on either of the properties that are presented here.  Maybe you would.

     I'm sure some of the difference in investor styles and philosophies can simply be chalked up to varying preferences; however, I'd still like to understand. William, what criteria do you use when it comes to determining how much leverage you are comfortable with on a property? Also, what % do you usually aim for in cash flow compared to the amount of leverage? 

    0Reply
  • Jacob Murphy
    Contractor · Cincinnati, OH · Member since 2015 · 92 posts · 75 votes
    9y

    @Account Closed It looks like you've gotten a lot of great advice on here so i won't comment on the numbers. I do however want to comment on finding a property. 

    I recommend you put an email alert on the homepath.com and homesteps.com websites for any multi family that hits the market in hamilton county. They only have a few per year but they price the properties below market and only offer to owner occupants like yourself for the first 20 days. I have seen some real gems of duplexes go through that website that you would cashflow $200 per door easy if you ever moved out, plus they are in decent neighborhoods, and they are about 20% below market value. 

    You can almost think of these properties as long term flips. Buy it, live for free since the tenant is paying the mortgage, when you move out think about selling it. Lots of these properties you would make 30K plus profit without paying any taxes (assuming you owned the property long enough to avoid capital gains).

    2Reply
  • Account Closed
    OP
    New to Real Estate · OH/TN/FL · Member since 2016 · 135 posts · 35 votes
    9y

    Wow, thanks so much @Jacob Murphy for this awesome advice! I will certainly look into setting up these alerts and keeping your other tips in mind as well.

    0Reply
  • John Blythe
    Investor · Fishers, IN · Member since 2015 · 85 posts · 22 votes
    9y
    I'd say update your offer to make your monthly cash flow per unit double *at least.* Worst that can happen is they say no and you avoid a too-narrow-of-a-margin deal.
    1Reply
  • Account Closed
    OP
    New to Real Estate · OH/TN/FL · Member since 2016 · 135 posts · 35 votes
    9y

    Hi @John Blythe, thanks for that suggestion! While I've moved on from both of these potential "deals", that's a good point for future consideration when making offers!

    1Reply
  • John Blythe
    Investor · Fishers, IN · Member since 2015 · 85 posts · 22 votes
    9y

    @Account Closed , have you read Gary Keller's "The Millionaire Real Estate Investor" yet?

    i had it as one of my first REI books yet didn't start reading it till last month. and shame on me for having read many of the others beforehand. he kills on the subject of offer terms and the way they can help to really sift out otherwise dangerous to terrible deals. highly highly recommended.

    1Reply
  • Account Closed
    OP
    New to Real Estate · OH/TN/FL · Member since 2016 · 135 posts · 35 votes
    9y
    Originally posted by @John Blythe:

    @Account Closed , have you read Gary Keller's "The Millionaire Real Estate Investor" yet?

    i had it as one of my first REI books yet didn't start reading it till last month. and shame on me for having read many of the others beforehand. he kills on the subject of offer terms and the way they can help to really sift out otherwise dangerous to terrible deals. highly highly recommended.

    I actually have not, but I'm an avid reader so I'll definitely add it to my list! Thanks! Are there any other books you'd recommend as a priority read for a newbie serious about REI?

    0Reply
  • John Blythe
    Investor · Fishers, IN · Member since 2015 · 85 posts · 22 votes
    9y

    i'd be glad to! fellow n00b here, so others can comment w much better lists i'd imagine.

    rich dad poor dad. personally not a fan of the format, but everyone seems to love this one. i read it in highschool but revisited it when beginning REI. despite the meh nature of the writing and anecdotes, there are a handful of principles and concepts that can serve as a sort of Copernican revolution to your outlook on finances, assets, REI, etc. protip: much easier to blaze through the boring portions and still pick up all the goodies when listening in audiobook format at 2-3x speed.

    multi-family millions by david lindahl was a great read for me. really helped me to dream big on the ultimate direction of my REI journey. i'm nowhere near the apartment complex stage, but many of the concepts bleed over to whatever angle your REI approach may take.

    ABCs of real estate investing was another beginner's guide that was helpful in orienting my thoughts. 

    gary keller's the millionaire real estate investor is by far the most thorough, comprehensive, and helpful. like i'd mentioned above, i very much wish i'd read this one before getting our first deal. 

    i'm in the middle of another that i can't remember the name of that deals w all the tax loopholes and provisions that REIs get to take advantage of. it's a solid one, but will be mainly used for reference in the future.

    out of what i've read so far, i'd suggest knocking out rich dad poor dad (again, on audiobook if you can handle that, will make the read much easier imo) and keller's book. orient your high level thinking via RDPD and get you a crapload of tools, charts, figures, ideas, etc. from Keller's nitty-gritty and incredibly practical work in TMREI.

    happy reading and happy holidays!

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