Author Topic: Starting off with Du/Tri-Plex  (Read 1254 times)

Zman

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Starting off with Du/Tri-Plex
« on: November 04, 2015, 12:10:37 PM »
Hi Guys,

I'm a newbie to real-estate and need lots of help... I'd like to purchase a Duplex or Triplex in LA/Pasadena/Highland Park Area sometime in the next year or so and want to start preparing. I know there are alot of posts (and stickies) about this already so apologies for asking redundant ?'s

1.) Where can I start learning about home repairs? Does HomeDepot offer free classes still or are there better options?
2.) Can I do a 3.5% Down loan if I have great credit? Does it matter if I live there or not, or if its a duplex vs. triplex (or perhaps SFR?)
3.) Books or other materials I should be checking out (I know theres a sticky)
4.) I want to eventually own multiple complex's, do I need some kind of LLC for this?
5.) Am I an idiot for wanting something in LA? I want this so i can stay local, but is there a better(out-of-state?) area to buy a first property to rent out and just have a property manager care for it? It would definitely be cheaper to buy!

Currently I rent a place to live and would not need to move out because my rent is cheap enough that it wouldnt make sense to leave. So it would be ideal to not have to live in the unit... or maybe find a tenant who would let me "live" there for mortage purposes and cut them a break on rent.

What other things should I be learning/doing now to set myself up to be successful at this? Thank you everyone.

J Boogie

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Re: Starting off with Du/Tri-Plex
« Reply #1 on: November 05, 2015, 08:59:06 AM »
Hi Zman, in general rental ownership in most parts of urban California is currently unwise.

I'm not saying you can't make an appreciation play there, but real estate there does not cash flow.

You're better off renting in California.

A good way to arrive at this conclusion yourself is to run some numbers using some common real estate investing assumptions - here's a little more info about it.

http://www.mrmoneymustache.com/2011/10/10/lets-buy-a-foreclosure-episode-2-what-is-the-50-2-rule/

So it can be done, but here's the purchase price you'd need to have to be cash flow positive on a duplex with both units getting, for example, $2,000 in rent.

Top line income - $4,000
Expenses other than mortgage payments (repairs, vacancies, taxes, insurance, mortgage insurance- estimated at 50%) - $2,000

Amount leftover to pay mortgage with - $2,000
Mortgage payment on a $400,000 loan @ 4.375% - $1,997

So there you have it, if you can find a ~$410,000 duplex that meets the 1% rule (gets $4,100/mo in rent), you have a good chance at breaking even.

I've heard that's hard to find in California, which is why I would discourage owning rentals there.

However, if you plan on owner occupying a duplex for a while, your accounting would be different.  Then you'd compare your monthly cash flow vs your current renting situation.  Many people look at it as having your tenant pay your mortgage, although that's a bit of an oversimplification. Your tax situation will be a lot friendlier as well.

I am currently in the process of buying a duplex (twin cities, MN) , looking at a purchase price of about 230k that reported $2500/mo in rent.

So it's a decent enough rental play, a solid owner occupant play (we'll get about $1,000/mo from the other unit), and given the neighborhood and school district, it's not a bad appreciation play.  I'm not really betting on appreciation though, but I am at least hoping it'll get me much better tenants.

Arebelspy has written about buying real estate out of state, as risky as that is for some people, it follows more sound logic than buying cash flow negative rentals.