Ok, I have read about 4 books in the past couple of days and have been reading all the posts I can find. I have come up with a rule sheet to assist me in deciding if a property is even worth a look. Please let me know thoughts and if something else should be added. Keep in mind, this is just the looking stage. If a property basically passes, I would look into it further. Still working on it.
Also, this would be my FIRST rental property so I am trying to be semi-strict.
Duplex Rules
Must be side by side unit. No up/down.
Must be 3 bdr each.
Must be currently rented.
Must be renting under estimated market rates by at least 10%.
Must have a GRM of 9 or less.
Must be able to show positive cash flow after all possible expenses (including hypothetical issues) are factored in of at least $100 per month per unit.
Must be under $60,000
Must be able to negotiate to a price below estimated FMV
Must not be a rehab duplex.
Must not let me own personal feelings about the property/area interfere. Numbers count.
Would consider a triplex.
Seller financing or carrying is a plus option to have.
Right now, I am in Nevada and am looking around at Ohio (IE Dayton, Columbus, etc). I also looked at Buffalo NY and San Antonio TX.
Why just 3 br properties. You will narrow your search down to only a very few properties and the bigger buildings will be selling for bigger bucks. Less brs usually mean more turnover especially i brs.
If you factor in hypothetical factors nothing will ever cash flow. There are too many things that can go wrong and a some of them will.
You are going to find the better deals to be rehabs.
Better option is to get seller to discount whatever note he may be willing to carry by 50% for cash now.
What kind of personal feelings? You do not need to love the area but If you need a gun to collect rent stay away.
Why under $60,000. Loans under $50,000 are hard to find and so are duplexes under $60,000. I just bought one for $12,900 but I had a really hard time finding a loan. I got a private investor loan at 12%. It needs $7000 rehab but will rent for $600 per month. If you can get deals like this why pass because it is only 1 br or does not fit some of your other criteria.
Although I agree it’s a good idea to have “guidelines”, I’d steer clear of set-in-stone “rules” that you set up for yourself. You’ll wind up missing many great deals.
We’ve been landlording for almost 10 years. We mostly buy and hold, as our primary goal is long-term income for early retirement. We’re about to branch out more and do some rehabbing and possibly other types of deals, as well.
I evaluate each deal/property on its own merits. What are the plusses & minuses? What’s the best case scenario and worst case scenario with this property? After doing a few deals you’ll develop what I call gut-instinct. I’m fortunate to have good gut-instinct. When I follow it, it has never failed me yet. The times I’ve gone against it (because I was desparate to fill a vacancy is a GREAT example) I’ve been burned every time. That’s not to say JUST follow your instincts and never do your homework on a property. It has to ALL work, but don’t ignore what your gut instinct is telling you about a place.
I’d say just get out there and buy something. You can read every book in the universe about any given topic, but until you ‘just do it’ you’ll never really get “it”. Have fun with it, treat it as a business, and keep asking questions!
I guess I should have put that I Prefer 3bdr but yes, I am a novice so that one is up in the air. I might find that in the area, other types are fine or better.
When I said hypothetical expenses, I did not mean things like “ok the AC goes out”. I meant coming up with a figure, say 40%, and assume that “might” be the expenses.
As to rehabs, well this is my FIRST prop and cashflow is king. I can’t risk buying a rehab, not knowing what to do, getting no cash flow, and then getting discouraged. I will mix these in later on.
I see duplexes under 60k left and right in places like Ohio and upstate NY. Hundreds. I have seen decent number around San Antonio for 60-80k.
Karlakr,
Buying and holding is my thing on these, which is why cashflow means the world.
Yea, I plan to get out there and get something this summer. Right now I am just learning what I can before hand.
For loan purposes, should I look a little higher like 100k duplexes? I found some from 100-150k but these are normally selling at GRMs up in the 10-15 range and the rents are too low in the area to support all expenses. I definitely don’t want to find properties and find out that I can’t get a loan easily.
I cant agree more with Karla, When it comes to the get rich quick self help books, you reach a point of diminishing returns when all you do is read instead of do. I like your general formula, I use a %30 vacancy/repair buffer in my figures, and the rest is more or less common sence and instinct.
And for the record, the best flowing property I own at the moment is in the worst nehiborhood in my city.
I have personaly seen illeagle guns on the property in fact, but being a savy landloard that has read his fill of how to win friends and influence people, I do not need one to collect. Having said all that, I would not recomend ultra-ghetto to the novice landloard, Keeping tenants happy and paying in any givin market or nehiborhood is a matter of personal style and learned skill that sometimes still lets me down… When things DO go bad with a tennant, It is an undeniable fact that it is FAR less stressfull when there is no thret of physical confrontation (or murder LOL).