# what todo? 15k or 400 per mnth

question for the pros. A duplex I recently purchased ,rehabbed and rented for 39k rents are 1190 per month, I just got an all cash offer for 55k for the proerty out of the blue. Would you take it? The cash would be nice to put into other properties but I could use a line of credit for that. Would you sell for the gain to buy a couple more properties?
Thanks

How much is your mortgage payment?

Right now I am paying hard money but I intend to refi the proerty to pay off the hard money lender and the piti will be about \$580 per month

From a rental point of view this is not a good deal.

\$1200 rent / 2 = \$600

\$600 - \$580 = \$20 positive cash flow

Personally that’s not enough money for me monthly.

serio the property takes in 1190 per month the mortgage payment is only 320 per month, taxes 200 and insurance 35 per month so total mortgage piti is about 550. I just got an offer to buy my property from another investor for 55k which would give me 15k minus closing costs innet profit. I am asking if you would keep it as a rental or sell it to buy a couple more rentals? Iactually see what you are trying to do there. You are taking it at 50% when you are dividing by 2 if you are going to do that then you can only include mortgage payment because taxes and insurance are part of the expenses so it would be more like.

1200/2=\$600
\$600- mortgage of \$320 per month = \$280 per month positive. Now if you could sell it for a 15k profit minus closing cost to put into lets say I could buy at least 2 more properties with that money, would you do it?

Right, I use 50% when calculating cash flow for any property. Mainly because it is impossible to determine repairs, vacancies, evictions, legal fees, management, gas for car, etc.

So I take the rent and divide it by 2, which is used for operating expenses.

\$1200 / 2 = \$600

The rest is used to pay the mortgage.

\$600 - \$320 = \$280

Personally, I would buy and hold as that’s what my business plan calls for. Also, I don’t really need any money down to pay for other properties because I buy them so cheap no money is needed for a down payment.

right thats what my plan is. I too buy the properties cheap, usually around 50 cents on the dollar and although I dont need money for down payment there are closing costs associated with purchasing them. What kind of reserves do you like to keep per property3 or 6 months of mortgage payments?

Another thing to take into consideration is capital gains tax. Is there anyway to negate that like by reinvesting profits within 90 days or even getting enough rental properties to offset the cap gains tax?

I am going to geek this up here, but do PV (present value) of an annuity that pays 320 a month for the next 20/30 years assuming a 3% inflation rate. Then if you really have the financial calculator skills, factor in that rent prices will increase by X% a year, usually higher than inflation. Then factor in that you have an appreciating asset (duplex).

Now, decide what you can realistacly do with 15K? How far will that go into another deal? That is only 3 rounds of closing costs.

Then add in the tax benefits of the interest paid on the duplex every year.

I haven’t crunched the numbers because my financial calculator died (or my wife killed it) but I would say keep the duplex. In fact, if it turned 1200 a month gross, I will buy it from you for 60K!

Ok, I will shut up now.

dwj469,

I would keep it as a rental. I don’t know anything about your area, but generally, the retail price for duplexes in this price range are about 75 to 100 times the monthly rent. So, in my opinion, the retail value would be somewhere between \$90K and \$120K. Is that true in your market? If you want to sell it, find a newbie landlord that will pay retail and make some real money. I certainly wouldn’t sell it for only a \$15K profit, which will be partially eaten up by taxes.

This is an issue that you’ll have with all of your rentals. If you buy right (and I see that you do), then you can always sell at a profit. Therefore, you need to decide what business you want to be in. I am in the rental business. I have no desire to be a “flipper”. I’m keeping all of mine!

Let’s say that you could keep \$10,000 after taxes and closing costs if you sold. You’re making about \$3,500 PER YEAR in positive cash flow from this property, plus any appreciation, plus tax benefits, plus the principal that is being paid down by the tenants, plus you picked up a lot of equity at closing (that you’d be giving away by selling cheap).

Would I throw all of that away for \$10,000? Are you kidding?

Mike

Hi guys thanks for the replies. As usual they are great and give many points of view. My problem is I need cash to advance my portfolio. I could get a line of credit, but if you needed cash and could sell this property to buy a couple more what would you do? Get a credit line instead of selling?

oh by the way js it does turn a \$1190 per month gross rents.

dw,

What is the retail value of this property? What did you do for closing costs on this property? Why is it costing you \$10K to \$15K in closing costs for 2 more properties? That is HIGHWAY ROBBERY! Can you get a bank loan instead of hard money? Since you are buying at a huge discount, can you get a small local bank to loan you 100% of the purchase price (including closing costs)?

You need cash to further your portfolio? You say you have a cash flow of \$400 per month with this duplex. Why not save that for a few months?

Mike

Hi Mike, its not costing that much I just figure I can get at least 2 more properties plus have a nice cushion. I am using a hard money lender because they close very fast and these deals I am getting are cash deals. Bank dont close fast. I can and am actually in the process of refinancing the property to pay off the hard money loan of 39k plus a couple thousand extra. You are right I am leaning towards keeping it I have been looking at the numbers all morning and by the looks of it 15k is not enough to get rid of the property. I am going to have to pay a cap gains tax of probably close to 3500 in addition to seller closing costs.