Im 22 years old and i am looking to invest in my first duplex. It is currently rented out to two section 8 tenents at 720 a month and the state pays all of that portion. I will be able to get it at 15 thousand down and 120,000 in seller financing 600 a month.
A month
Taxes- 200
Insurance-150
Water and electricity- paid by section 8
RUNNNNNNNNNNNNNN!!!
Very bad deal.
can u explain in alittle more depth why this might be a bad deal to get involved with. i have a clearly large cash flow each month.
month gross revenue 1400
35 percent expences -490
net revenue before debt service. 910
Debt service- 600
Net Cash Flow is 310.
Can someone explain why this is a bad deal.
Throughout the United States, operating expenses run 45% to 50% of gross rents - NOT 35%.
Therefore, in your example:
Gross Rents: $1,400
Operating Expenses: $700
NOI: $700
Debt Service: ($135K, 8%, 30 yr) $990
Monthly Loss: $290 OUCH!
I don’t know where you came up with debt service of $600, but that doesn’t even cover the interest. Does this loan have negative amortization?
Iron Range is right as usual. This deal stinks!
Mike
Some people’s view is that real estate is a win win game. propertymanager says there is a winner and a losser in Real Estate.
In this case the seller would be the winner and you would be the loser. The mistakes you make during your first 2 years of your Real Estate Investing will decide whether you distroy yourself or make it. Its critical you learn how to cash flow. Buy SLOWLY your first year or two, buy only great deals and follow your lease to a T. There is no other way to be successful.
We’re happy to explain how to cash flow a property if you have questions on reading the math.
Property manager- I came up with 600 dollars because the seller is willing to take back a morgage and the payment will be 600 a month for to years and the balance due in two years.
The second question is with the water and electricity being paid by the tenents how would the i spend 700 dollars a month on.
Taxes are going to be 200 a month.
Insurance - 150 tops
Management fee- 0
Misc- 150
So i would have to get the seller to change the terms or lower the price in order for this to be a successful deal?
Property manager- I came up with 600 dollars because the seller is willing to take back a morgage and the payment will be 600 a month for to years and the balance due in two years.
Then what? Then you’ll get a loan and lose money for the next 30 years?
The second question is with the water and electricity being paid by the tenents how would the i spend 700 dollars a month on.Taxes are going to be 200 a month.
Insurance - 150 tops
Management fee- 0
Misc- 150
Only in guru fantasyland do the expenses only include taxes, insurance, management, and misc. You didn’t even include maintenance, let alone all the other expenses that occur in the real world. Do a search on operating expenses - we’ve discussed this topic in great detail many times.
So i would have to get the seller to change the terms or lower the price in order for this to be a successful deal?
I wouldn’t even waste my time. This is a retail deal and retail deals won’t cash flow. You need to find a desperate seller that is willing to sell their property at a HUGE discount if you want to make money.
Good Luck,
Mike
thanks alot for your help.
I would pay about $75,000. So bid $75K and then move on to the next property. In the past I have put a dozen bids down in one day.
The seller needs to be desperate, but more importantly the seller needs to have EQUITY. I’m more of an equity finder then a desperate seller finder. I will find properties with descent numbers and bit low on all of them. I let my low bid find out who is desperate and who is not.
I hate to say it but what you should be looking for is basicly something for nothing. When you are figureing the #'s you have to figure in a comfort zone for when the water heater goes out, when the sink starts leaking and the roof starts leaking and when you don’t fill out the correct paperwork witch causes the rent check to not show up and all of this WILL HAPPEN beleive you me. If you have not made 20 to 30 offers before buying your 1st building you are probably not bidding low enough. What have you got to lose it costs nothing to make an offer and it takes my realtor about 40 seconds to write up an offer on the computer now days. But when you pay to much for real estate you have lots to lose.