All Forum Posts by: Nate Wilson

 I've been dealing with renters in Chicago for over 10 years and have never had that to happen.  It should be noted, I deal on the south side of Chicago.  My last tenant left the place so clean it looked like she hired a cleaning service.  However, things are always different for a myriad of reasons.  With that, this seems more like a long term investment that can eventually be a great income producing property.  It's extremely important to save any proceeds for the first year or two.  That way, when something does happen, it will be business as usual and not a burden.  Good luck!

@Nate Wilson I (and probably a lot of folks) don't pay full price.  Rule #1 for most  is 'don't overpay'!  

If I had to have this, I would offer something like $171,467.  Get close to market value with a number that appears to come from a detailed analysis.  I never  offer nice round PFA numbers the realtors always seem to throw up.  Be specific and be un-countered!  

Much of these numbers are area and property specific.  I have a 60's build 7-family of 2/2 townhome apts that behaves much differently than a 19teens complex of 1/1s.  I'm ok with a cap of 9 on the townhomes but need 14 on the older, smaller stuff.  Trunover and headaches are higher.  My smaller plexes are different as well.  If your duplex is large enough, has laundry, a yard, off-street parking, etc in a decent location, your vacancy rate should be much lower than if it didn't.  They will also attract a higher class of tenant that is easier on you and the property.

Duplexes are valued based on comps.  1%/mo works on paper in my area, but are you getting a good value with this at $200k @Nate Wilson?    Are you paying full price or getting a discount from a motivated seller?  

Hi @Nate Wilson, from my experience, I've found the 50% rule to be much more accurate than the 2% rule... especially in our area. If you have a potential rental income of $2000/mo and a PITI of $1200/mo, that already shows that the numbers won't fit within the 50% rule... however looking deeper, I usually use the following numbers as an estimated budget:

10% of gross rents for maintenance (keep this money tucked away until you need to make repairs)

5% of gross rents for capital expenditures (I usually recommend 10% if the building is 50+ years old or has not been updated for a long time)

10% of gross rents for management OR for vacancy (If you have a professional property manager hired, they should have a tenant lined up by the time your current tenant chooses to leave, effectively meaning you'll have a vacancy rate of 0%.  If you don't have a professional property manager hired, you can probably expect to pay about 10% of your gross rents for vacancy while looking for a new tenant or might need to make repairs from the last tenant)

10% of gross rents for water, sewer, trash, and snow removal (even if you're not running on city water, you still should be budgeting money accordingly for water because at some point, the pump in your drilled well is going to give out and you'll be left high and dry unless you have the money to fix it.  Additionally budgeting for trash pick-up and snow removal is helpful too)

5% of gross rents for miscellaneous items (unexpected items that aren't always budgeted for, such as fees for running credit checks, or if you need to survey the property because of a title dispute, fees for hiring an accountant to keep your books in order, or some other random item).

This is a more conservative estimate I use when getting an idea of expenses on a property... totaling about 40% of gross rent, and in this case, $800/mo.  This essentially puts your profit at $0.  This is also not knowing anything about the condition of the property.  If there is deferred maintenance, you'll be running negative cash flow for the first year or two trying to catch up on it.  

From what I've seen in our area, its very difficult to cash flow positively with a duplex, and in the cases you do, it usually isn't worth it because you end up making very little per month.  

@Nate Wilson, put simply: if your monthly expenses are $1000/m, and your mortgage is $1000/m, then your $50k deposit is getting you ZERO interest!!! 

Put even simpler: you are going backwards!

If your trying to rationalize a purchase decision by saying "expenses will be a lot less than $1000/m (50%)", or "I expect good appreciation of the property value in future", then you had better have VERY realistic reasons to say so, because: it ain't "a perfect world"! Cheers...