I really really want to actually do something in real estate. I just keep putting it off and putting it off…I want to take some type of action and just do it (lol, nike).
Duplexes seem like a great starting place…you dont have many tenants to worry about and you can live for very cheap. Any major cons against owning a duplex that I should know about and think about before I go about finding one?
Which leads me to my next question…how exactly do you find duplexes for sale with big discounts? My friend just bought one for $250,000, and I definitely do not want to get involved with that type of money right now…I am still rebuilding my credit and saving money. Do duplexes normally go into foreclosure much, or should you just look in the newspaper for them like you would for a FSBO? If I could find a duplex with a large discount, I would be on my way to doing what I want to do. ANY advice or input is greatly appreciated!!
You can find duplexes on the MLS by searching for multi-family. You can go to www.realtor.com and click on “advanced search” on the front page. Then just click on multi-family and enter your desired search area. If you could get the mortgage for one and didn’t mind living in one side, you could do that and save money on your living expenses by renting out the other side.
You may be able to find someone looking to unload a duplex for cheap. Possible reasons may be: owner relocation, owner retirement, bad experiences with landlording (tenants), pending foreclosure, poor building condition, etc.
Most of the duplexes I’ve come across have not been below retail. Obviously everyone wants top dollar when they sell, but the duplex’s value will be based off income (as should be any multi-unit). Doesn’t matter if it’s the prettiest building in the world…if the rents won’t support the asking price, it’s not worth it. Do some searches on this site for how to value income producing properties (the 50% rule). $250K for a duplex is extremely pricey. I’d love to hear what kind of rent your friend is getting for that building.
Which leads me to my next question...how exactly do you find duplexes for sale with big discounts?
Get out of the house and meet people. Join your local REIA. Talk to people (everyone you know and meet) - tell them that you buy property. Find a local realtor who works with REAL investors. Find out who the disgruntled landlords are (at your REIA). Go to auctions. Look at FSBOs, etc.
I think buying a duplex to live & rent is a great idea to start. I wish I did that when I was younger and renting an apt. Duplexes also are a little easier to sell sometimes than the larger ones. In order to buy one at a big discount, you may have to do some sweat equity. You can get the side you’ll rent done first. Then you can work on your side while you’re living there. It’s possible to live nearly rent free if you buy it right. But even if it costs you a few hundred a month, it’s not too bad. In my area, duplexes are valued using “comps” instead of the income approach. You’ll also get a better rate for being an owner occupied propert. Good luck.
Thanks for the help.
So, what if the other side is occupied and they do not want to leave, but it needs fixed up? Just leave them go because they are already paying rent and just fix it when they leave?
When buying a duplex, do you use the standard 50% or 2% formula when deciding if its a good price to by…Im assuming you treat it (formula wise) like you are buying an apartment? Please corret me if I am wrong.
If you are going to buy a duplex with tenants already in it, you need to see if they’re on a lease or not. If they have a lease until a future date, you’ll honor that unless you can convince them to leave. If they’re not on a lease (or on a month-to-month basis), you can give them notice of termination. If they don’t leave, you evict and go on.
You could also keep them in there and just fix it when they leave. Our building still has a couple tenants who came with the building whose apartments have not been rehabbed. I’m ok with that because they pay their rent, don’t tear things up, and we’ve spent a good amount of money on the other units during the past year. If they were to leave, I would reahab their apartments and charge more for the next tenants.
For price valuation…As phlemboy stated, duplexes in his area are based on comps like SFHs vs. the income method. In my area, there are so few duplexes (area of small towns) that I could not accurately value a duplex based on comps. Price appreciation is slow in my area, so the building has to be making me money or I won’t get it. Therefore, I use the income approach. Remember, the 2% formula is a screening tool to see if the property would likely produce any cash flow. You need to do your due diligence and do a detailed cash flow analysis to see where your property falls. Just think of it like this…If the numbers for the known items (mortgage payment, property taxes, insurance, etc) are so high where the rents won’t give you your desired cash flow, you’ll definitely be losing money when you consider vacancy, tenant damage, maintenance, repairs, advertising fees, etc.
Aares - I believe the guidance is to use both the 2% and the 50% rules. Figure out the price using each formula and then pick the lowest one.
I guess it depends on your cash flow. If you are still making money after ALL your expenses, then I would let them stay. If you need to rehab to get a positive cash flow, then I would do like justin said.