Should we stretch Financially?

Question

I have a question for the BP community about a couple duplexes. I am torn between 2 duplexes. Duplex 1 is older(1960), less expensive(155k), and able to put 25% down. Duplex 2 is a newer build(2009), more expensive(189K), but we can only afford 20% down.(which I have a lender lined up). We would like to have a newer built duplex that seems to be built with the landlord in mind with durable finishes and whatnot. The only problem is that with the 20%, comes a higher interest rate which affects the overall cashflow. What does the community think? The COC return is about the same for both duplexes.

Evan Polaski · Answer

@Michael Valenzuela, as Nick mentioned, without more data, it is near impossible to tell.  Has the 1960s property been fully renovated in last 3-5 yrs, while 2009 build is in original condition?  Was the 2009 property built with finishes that were really trendy then, but now are feeling dated?

In my neck of the woods, the older suburbs are much more desirable to tenants and owners, so are appreciating faster than the suburbs that were built in the late 90s through early 2010s, but this was holding true even pre-pandemic in my area.

Nick B. · Answer

I'd go with a newer one. It pulls higher rent while capex should be lower based on age. Depending on location and interior/curb appeal it may also attract higher quality tenants.

Michael Valenzuela · Answer

The newer duplex gets $1800/month and the older one gets $1300/month(but can be raised to at least $1500). The loan terms for the newer duplex is 5.25%+2pts for 30years and the older one is 4.5%+1.5pts for 30 years.

Nick B. · Answer

@Michael Valenzuela, you did not provide any data besides prices. How much are the rents? What do you budget for initial CapEx? What loan terms are you getting?

Theresa Harris · Answer

You are leaning to the newer one.  If you can afford it and think it will be less work over all, then go with that one.