Hello everyone,
I just found this site and would love some advice/feedback. I am looking to purchase my first duplex in Texas. It’s 3/2 on both sides and asking price is 155,000. Both sides have been rented out for $800. I see that you guys give the best advice so I wanted to see what you guys thought of this property. Thanks in advance!
Welcome to the forum!
To answer your question, this duplex is a loser. For a property to cash flow properly, you need a property to generate gross monthly rents of about 2% of the acquisition cost (purchase price + rehab costs). This duplex is only at 1%, which means it is a guaranteed loser.
Keep looking.
Good Luck,
Mike
not much info to go on (condition, location, age, comps, etc about the property), but this will not cash flow.
I would pass in this market climate unless its at leat 20-30% under comparable sales in the past 3 months.
Thank you for your replys. To answer some of your questions, the duplex is brand new. I am actually flying out to Texas to meet with agents out there. Is this the best way to find properties that are not in your state? And if I do not need to rehab this property does it fall under the category being under the 2% of acquisition costs?
Being brand new just implies that you won’t have to sink a bunch of money into the property right away. It still does not cash flow at the price/income you report. If I might ask why are you buying property out of your home state? Why not invest in your own backyard where you can better understand the marketplace.
There is nothing even near this range in Los Angeles. And I’ve heard it’s only going to get worse for another year or so. I wanted to find something very affordable for my first venture in real estate.
I wanted to find something very affordable for my first venture in real estate.
This isn’t it! This duplex will bleed money. Additionally, buying something new to rent is pointless. The tenants will tear it up in no time. That’s the rental business - it’s a race to see if the tenants can tear it up faster than the landlord can fix it. If you’ve got no cash flow, game over - you lose!
Mike
Thanks Mike. I guess it’s back to the drawing board. If I’m looking out of state is there anywhere in particular you would recommend? I’m hearing Fort Worth, TX and Indianapolis but not sure if it’s too late for these areas.
This is not necessarily a losing deal, just a likely negative cash flow as a long term rental holding. I am assuming that you will be doing 80% financing with a 30 year fixed rate loan. I am guessing that your monthly mortgage payment will be about $1000 (PITI) per month for the first year.
After property management fees, at least one month vacancy per side, leasing fees and commissions, repairs and maintenance, you may just break even on a cash flow basis in the first year. After the property tax reassessment in the next year, expect your monthly mortgage payment (PITI) to increase to $1200 per month. With just $800 rental income per side, you will likely be in a negative cash flow property.
Instead of buying to hold as a rental, consider dividing the duplex and separately deeding each side. Now, put a one-year lease option tenant in place at $1100 monthly rent and an option price of $90K. Do the same for the other side. You may still profit on this property if you can get a lease option tenant in each side.
Just curious, are these duplexes in Azle, TX?
Thanks for the information Dave. They are actually in Fort Worth.
Instead of buying to hold as a rental, consider dividing the duplex and separately deeding each side. Now, put a one-year lease option tenant in place at $1100 monthly rent and an option price of $90K. Do the same for the other side. You may still profit on this property if you can get a lease option tenant in each side.
Dave,
Why would you do all that when you could just find a better deal that WOULD cash flow?
Mike
Mike,
You and I are both buy and hold indefinitely guys. That is the sandbox we play in and we only have room in the box for deals that put more sand in our box. With a buy and hold indefinitely approach, this deal would take sand out of our sandbox, so, we wouldn’t put it in play in the first place.
jiwonee61 does not have a sandbox yet (at least he has not said so). He already got lots of feedback how this deal does not work for the buy and hold investor. No one was suggesting how this property could still put sand in a different sandbox. I saw no harm in pointing out that this deal may still be profitable with a different exit strategy.