SFH or Duplex??

Question

I am looking at 2 properties for my first true investment property purchase!  I have a rental that was my previous home that I couldn't sell after we built our new home.

#1  2 bed 1 Bath (full finished non-conforming basement) SFH Assessed at $67,980 Listed 3/21/13 for $68,500 dropped to $59,500 6/14/13.  I was thinking of offering $54,500 Turn Key (BEAUTIFUL) currently rents for $750/mo but its a friend of the owner who bought it to rent to her (Not sure if she plans on staying haven't made it that far yet) if not I'd conservatively say $700/mo.     $700 - 350 (50%) = 350 - $262 P&I =$88 or $750 - 375 = 375 - 262 = $113 Cash flow.

It is 23 miles from my residence so I plan on doing the managing which will help the cash flow about 8%

in the 2% rule I am at 1.37-1.28%   Plan on Buy and Hold.

#2   TLC Duplex

2 Bed 1 bath lower, 1 Bed 1 Bath Upper separate electrical.  Assessed at $62,300  Listed 7/30/13 for $29,900.  It was listed last year 8/7/12 for $19,900 so I think it was removed and some mechanical renovation done, and they are trying to recover their renovation costs.  Will probably take 10-15k in renovation but that is site unseen.  I believe the upper unit will rent for $350-375 and the lower for $450-475.   Total cost plus renovation upper end $45k.

$800 Rent - $400 expenses - $240 P&I = $160 or $80/door Cash Flow.

Close to the 2%

Maybe I don't have enough information on this one to make an educated assessment?  Plus its my first real fixer up.  I renovated our first house included complete bathroom gut so I am capable just not sure I want to take on this task unless its a far better deal than the first one.

I feel a lot more confident (less risk) in the first property but I think the potential in the second one could make it a much better investment for cash flow especially if mechanics are good and its all cosmetics not sure about long term for resale if its not a SFH.

Thoughts?  And thanks in advance!

Bill Ham · Answer

Houses make money when you "steal" them. Multifamily makes money by design.

Christopher Derr · Answer

I see the first house is now on Craigslist looking for $700/more rent so my guess was decent on that.   I think I'm going to keep looking for awhile but if I see it after a few months my guess is they may be getting more motivated to sell.  If not I don't think it was to great of a deal to pass up

Bob Hines · Answer

If the choice is between these two, I would suggest to go with the first one.  I won't consider anything that will rent for under $400 as it is too easy to have tenants do damage that can cost several months of rent or even routine maintenance can eat up several months of rent.  If I'm going to be dealing with a tenant, I'd rather be getting $750 from them instead of $350.  Also, I prefer to work with tenants that are looking for a $750 house instead of a $350 apartment.

Christopher Derr · Answer

I would agree until you need an out and you sit on a property that's vacant when your trying to sell it at which time it can easily eat up your profits or you sell it at a loss.

Michele Fischer · Answer

Normally we favor duplexes, but don't like this one for two reasons. One bedrooms are a tough market, and I look for at least $100 per door cash flow.

Account Closed · Answer

If it were me, I'd go for the first one.  It's turn-key ready, potentially already has a tenant in place, looks well-kept, etc.  With the second, it is not THAT much better of a deal, and you'd have to fix it up - did you include labor hours/time in your rehab calculations? Plus, you'd have to find 2 tenants instead of one.  Just weighing the pros and cons here.  Would you use a property manager with the 2nd property, or would you plan to manage that one yourself as well?

Nicole A. · Answer

Perhaps the SFH is an easier bet. However, if it currently rents for $750 and that's to a friend of the owner...why would you "conservatively" say it'll rent for $700? Wouldn't you think that $750 is probably already a good deal? Have you checked out what other nearby houses are renting for? If you can't find the info on say, Zillow, perhaps you could ask people in the neighborhood. I recently rented each apartment in my duplex for $850 when the previous rents were $795 and my buddy didn't think I could get $850. :-)

Daniel Root · Answer

Have you looked at the comps in the neighborhood for the two properties? It is always nice to build in some instant equity with the 70% ARV rule even if you are a buy and hold type of guy. Might be able to push it to 75-80% ARV since you will be renting and may be keeping them for a long while.

Christopher Derr · Answer

I can get a loan up to 80% of assessed from my local community bank they would keep the mortgage and not sell it on the secondary market on the first one, and the 2nd one I can get a home equity line of credit for then after rehab roll it into a standard mortgage.   I have about 90k in equity in my residence.  Both are in the same town of about 30k with a community college.   So distance is the same.

My thought process is cashflow will only be used for additional property purchases, I want to use them as additional retirement income or selling them when my small children need help with their first home purchases.  Tax depreciation will also be nice although no investor truly counts that.  I am not trying to supplement my current income.

David Krulac · Answer

@Christopher Derr

Personally I'd go with a SFH that is closer to where you live and better cashflow, so if it were me I'd chose none of the above.

I do have a preference for SFH but I own duplexes, apt, condos and SFH.

SFH or Duplex??

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