Advice on property deal - 50% percent rule pass?

Question

I'm new at real estate investment and have been reading everything I can on investing properties, specially at Bigger pockets. My goal is long term investment. Buy and hold. Being so new I would the more experienced opinion of the wiser BiggerPockets community.

Here is my dilemma:

I live in Northern California where house prices have hardly dropped and my community has currently 1 house below the $400,000 price. We are near a University and the rental market is always busy.

I'm currently looking at two houses. A Duplex that rents for a total 1700 / month A Fourplex with rents that total 3950 /month

The duplex, I'm thinking of offering 215k bank wants minimum 235k

Fourplex I was thinking of offering 400k Banks wants 465k

At these prices my calculations don't seem to cover the 50% rule. I'm doing FHA or Conventional with only %5 down.

Doing my calculations, at the prices they are asking I don't even get a Cap Rate of 6% or the 1% rule.

What do you guys think? Houses are so expensive in this area and this makes it difficult to negotiate using comps.

I'll appreciate your input.

Marc Therriault · Answer

That our situation here too I bought two houses for rentals but got them under value because of being creative. Now I've been looking for more but prices are rediculess. So right now all my property's generate about 48k a year passive income so my plan is to save up about 60k and buy houses at 200k with 60k down to make them a better safer investment. It's that or nothing out here and although house out here are profitable at 200k we in Canada have a floating rate 2.5% but it can go up or down, so if it goes up to 5 % 200 k dept is going to be ugly. And a higher interest rate might affect house prices so I don't want to be in a bad position so if it takes saving up 60k that's what I'll do. Bottom line maybe you should save up more money or make sure you can carry it during rough times.

Advice on property deal - 50% percent rule pass?

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