Author Topic: Is this duplex worth looking into?  (Read 3566 times)

Murse

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Is this duplex worth looking into?
« on: June 21, 2016, 07:23:24 PM »
Okay, truth time. I was driving today and saw a duplex for sale listed at 300k. The plan would be to live on one side with my current roommates and rent the other side out. I am assuming I could get at least 1k/ month rent for the other side. The flyer says property taxes are 3200/year. So truth time is that I do not have a down payment. I could potentially borrow it from my parents, or grandparents or try to find a 0 cash down way of going about it. Income is currently 6300ish/month gross. All questions/criticism is welcome. (Expenses are currently around 1k/month)

Murse

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Re: Is this duplex worth looking into?
« Reply #1 on: June 21, 2016, 08:30:34 PM »
All of my money is going to retirement accounts currently. I have worked 9 months out of school and have 11k roth ,22k in a 457, 1k in a taxable and 2k banked. I also have made a couple loans to friends. 2.1k to one and 500$ to another. Also I paid around 4k of student loans off in this time. I get paid once monthly so I'll be about 5000$ richer in less than 2 weeks.

Also something to add: if I did get a loan from my family that would obviously become my #1 priority.
« Last Edit: June 21, 2016, 08:39:12 PM by Murse »

JLee

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Re: Is this duplex worth looking into?
« Reply #2 on: June 21, 2016, 08:59:46 PM »
How many other duplexes are in your area and what are the listed prices?

Murse

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Re: Is this duplex worth looking into?
« Reply #3 on: June 21, 2016, 09:11:48 PM »
Quick zillow search shows 7 in the area, all but one priced 10k-100k more. I am basically wondering if folks think I should tour or go see if I can get a loan. If they do then I will do my due diligence.

JLee

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Re: Is this duplex worth looking into?
« Reply #4 on: June 21, 2016, 09:29:21 PM »
Quick zillow search shows 7 in the area, all but one priced 10k-100k more. I am basically wondering if folks think I should tour or go see if I can get a loan. If they do then I will do my due diligence.

IIRC you'll need 3.5% down for FHA (ridiculously high PMI) or 5% down for conventional (20% to avoid PMI).  What is your current monthly housing cost and what would your projected monthly housing cost be if you were to buy a place?

Murse

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Re: Is this duplex worth looking into?
« Reply #5 on: June 21, 2016, 09:45:12 PM »
Current housing cost is 300$ (I know hard to beat.) if I got the duplex housing cost would be whatever the mortgage is+PMI (maybe)+ 3200/12 (taxes) + maintenance +homeowners insurance-1000$ (conservative rent guestimate) -400$ for each of my 2 roommates.

rothnroll

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Re: Is this duplex worth looking into?
« Reply #6 on: June 21, 2016, 09:54:28 PM »
Continue with your current renting situation.
I wouldn't mess with the townhouse. I would continue to pad accounts and become debt free, while renting with room mates.

JLee

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Re: Is this duplex worth looking into?
« Reply #7 on: June 21, 2016, 10:57:32 PM »
Current housing cost is 300$ (I know hard to beat.) if I got the duplex housing cost would be whatever the mortgage is+PMI (maybe)+ 3200/12 (taxes) + maintenance +homeowners insurance-1000$ (conservative rent guestimate) -400$ for each of my 2 roommates.

A $300k mortgage at 3.92% is $1418/mo.  PMI for my $140k house with 5% down is ~$65, so estimate $130/mo? Taxes, $267. Homeowners insurance, maybe $50 (not sure on your area). Add 1% of property value for maintenance ($250/mo):

$2,115 plus utilities.

Subtract rental income (which is not guaranteed, btw - you may end up vacant for months at a time) and you are looking at $315 plus utilities before you factor in any taxes from your rental income.  This is also ignoring closing costs entirely, which will likely add thousands up front.

It's a bad plan, IMO.

Murse

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Re: Is this duplex worth looking into?
« Reply #8 on: June 22, 2016, 05:39:41 PM »
Current housing cost is 300$ (I know hard to beat.) if I got the duplex housing cost would be whatever the mortgage is+PMI (maybe)+ 3200/12 (taxes) + maintenance +homeowners insurance-1000$ (conservative rent guestimate) -400$ for each of my 2 roommates.

A $300k mortgage at 3.92% is $1418/mo.  PMI for my $140k house with 5% down is ~$65, so estimate $130/mo? Taxes, $267. Homeowners insurance, maybe $50 (not sure on your area). Add 1% of property value for maintenance ($250/mo):

$2,115 plus utilities.

Subtract rental income (which is not guaranteed, btw - you may end up vacant for months at a time) and you are looking at $315 plus utilities before you factor in any taxes from your rental income.  This is also ignoring closing costs entirely, which will likely add thousands up front.

It's a bad plan, IMO.

Thanks for the breakdown but I would like to ask it another way. Let's say I wanted my own place within, oh 2 years. Wouldn't this make more sense then a SFH? I mean, not all of my costs are covered, but a good percentage is offset by the rental income?

Murse

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Re: Is this duplex worth looking into?
« Reply #9 on: June 22, 2016, 07:06:58 PM »
In two years, once you have saved up a down payment and a significant emergency fund, it might make more sense.  But right now you have no cushion if anything (including tenants suddenly leaving) goes wrong.  Not to mention that if it is selling for significantly below market there may well be something wrong with it that will take significant investment to fix. 

Keep saving money and wait until you have more of a nestegg to work with.  In the meantime, lots of people refer to the site Bigger Pockets as a good place to learn about real estate investing.

Thanks for the feedback, I appreciate it.

totoro

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Re: Is this duplex worth looking into?
« Reply #10 on: June 22, 2016, 07:20:25 PM »
Are properties appreciating in this area?  Is it well located and would it be desirable as a rental?  What are the vacancy rates?  Is it in a good area?  I always buy in good neighbourhoods only.  You want to attract good tenants.  You need to understand why this place is cheaper.  Talk to a realtor in the area.

I believe that a duplex is a good way to go as a first home and that borrowing the funds for the down payment when you have a good salary and track record of saving it is not a bad plan. 

Ballpark without any renos it is going to cost you $2000/month.  Part interest which is an expense, and part equity pay-down which should be accounted for somehow.  You should do a spreadsheet and account for the additional tax you'll pay on rental income too and then decide.  Bigger pockets has a good one.

Murse

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Re: Is this duplex worth looking into?
« Reply #11 on: June 23, 2016, 04:57:41 PM »
Are properties appreciating in this area?  Is it well located and would it be desirable as a rental?  What are the vacancy rates?  Is it in a good area?  I always buy in good neighbourhoods only.  You want to attract good tenants.  You need to understand why this place is cheaper.  Talk to a realtor in the area.

I believe that a duplex is a good way to go as a first home and that borrowing the funds for the down payment when you have a good salary and track record of saving it is not a bad plan. 

Ballpark without any renos it is going to cost you $2000/month.  Part interest which is an expense, and part equity pay-down which should be accounted for somehow.  You should do a spreadsheet and account for the additional tax you'll pay on rental income too and then decide.  Bigger pockets has a good one.

Properties are appreciating in the area, it is located just a few blocks from the local CC. I called my credit union to ask about being pre approved for a mortgage so that I could look into this property and other multi family's but was told that they require 15% down on duplex's and 25% down on tri's or quads so this is out of the question unless I could get a family loan.

rothwem

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Re: Is this duplex worth looking into?
« Reply #12 on: June 24, 2016, 08:13:14 AM »
I wouldn't do it, the property is overpriced. 

A duplex is an asset, meaning that it should make you money.  If you're cashflow negative, then its not making you money.  Even if you're okay with that, you'll have a tough time unloading it when the time comes because investors want to make money. 

This one costs too much, move on and find another property. 

Alternatively, you could do the math and figure out what it SHOULD cost and make an offer.  That's how I got my place.  There were 6 duplexes on the market that I would want to own, but they were all overpriced.  I did the math on what I thought they should be worth and make 6 offers on the same day.  I got turned down 4 times, but 2 of them countered and I went with the one that had the most reasonable counter offer.