All Forum Posts by: Jim D.

Nice to see you are running the IRR and factoring in all three potential profit sources (cash flow, principle pay down, and appreciation). Focusing on maximizing IRR instead of other metrics has heavily influenced my priorities.

To answer your main question directly, I am able to get 10-15% IRR on standard 25% down purchases, and 50-70% IRR on owner-occupied 5% down purchases (where I have to move into one of the units). The return is much higher on these since the profit is high in relation to the small down payment. Those numbers are assuming 2% appreciation. For example, a duplex that cost $188,000 that I moved into required just $9500 down (and I had the seller pay closing costs). I clear about $7000/year in cash flow from it after all expenses, giving it a very high IRR. A larger down payment brings the IRR back down out of the stratosphere, but still above 10% (still assuming 2% appreciation).

If you're bringing in $300k/year on a W-2, I would stick to that and not bothering learning the labor intensive sides of real estate. Sure, you can make more money in real estate in the more boots on the ground fashion, but it sounds like you'd be much better off looking for truly passive forms of investing as recommended above. Find a good syndicator and let them take their cut for having the expertise to manage all the hassle.

Way to go with jumping in on the purchase. I'd recommend dedicating at least a couple hours to reading up on the BRRR strategy before you start.... don't want to run into surprises on the refinance.

Ideally you'll qualify with your personal income for the loan, using a conventional fixed rate loan, so you should already be talking to a lender to make sure you're ready to qualify.

I have a couple of duplexes that only have one furnace. It's definitely less than ideal to not be able to control your own thermostat, but I have found that property owners sometimes make a bigger deal out of it than they need to. All I do is calculate the average gas bill over the last few years (let's say it averages $130/month for the whole duplex), and then have the tenants pay a fixed rate of around $60/month for gas (each unit). If one unit is a little too cold, they grab a $30 electric space heater and all is good.

Not as nice as having separate furnaces, but easier and way cheaper than doing a complex HVAC job. 

Sounds like a tough sell; if she's sentimental about the house, she probably doesn't want to see it become apartments for strangers.

I can't even convince my friends with no kids to live in duplexes... they are just too content to pay $1,500/month for the privilege of not having to hear footsteps above them every once in a while.

That sounds like a stressful portfolio to hold, if you were to have a bunch of those. The numbers are obviously not pretty in the scenario you described. 

I just did my first ARM (7 year fixed, 30 year amortization, 4.5% with a cap at 9.5%), and could hardly stomach that when I looked at the worst case scenario--it would go to negative cash flow by $200-300/month, and those rates are not too far-fetched. (It also has an option to re-amortize for a lower payment if I pay down extra principle, which is a nice option.)

I can absorb the worst case scenario for one ARM since everything else I hold is on low fixed rates and cash flows well, but I'd be wary of collecting a bunch of ARMs like this if they all have the potential to go negative cash flow. You don't want to end up telling your story on "The Big Short 2: ARMpocolypse".

Many repairs take time, and you shouldn't feel bad about that as long as you are doing what you can do get the repair in process and let your tenants know you're working on it. If your tenant informs you of an issue, and you respond an hour later with "Thanks for letting me know; I have called a plumber and he is coming over at his first available time which is next Tuesday", you should be just fine.

"Pick #3, my lord!"

If the door is functioning well, I would definitely just paint it. A good coat of paint will make it look much better.

The tenants can leave whenever they want--the question is just how much they'll owe you for breaking the lease early. Sounds like you have it spelled out well in your lease agreement; if the tenant gives you notice they want to break the least, there is a penalty of two months' rent. Just show the tenants that agreement they signed and let them know they'll be responsible for paying that as they agreed to if they move out early. You should be able to withhold their security deposit and apply it towards that. 

Two months is quite strong, assuming you can actually get them to pay it. The lease I use says tenants can break a lease if they choose to, but have to pay a $500 fee and are responsible for paying rent until I have filled the unit with another renter.

That is correct in my experience as well; even if I have owned a property less than two years, they'll count 75% of the rental income if I provide the leases. On occasion I have also gotten lenders to count 75% of anticipated income for properties I am purchasing, even if they are currently vacant.