Looking to buy my first duplex....

[G-Man]

Looking to buy my first duplex, and I've got some basic ideas from reading threads by @SteveO and some others. I've identified a couple properties, but I'm a little fuzzy on how to forecast/estimate cash flow, and what my target purchase prices should be.

For those that have residential investment properties: Can you direct me to some resources for an absolute beginner? Threads on this forum, books, etc. Anything to learn from.

 

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[jon.a]

biggerpockets.com

 

[lowtek]

i hear there are these 2 hour seminars in your local area where some T.V. celebrities will teach you their "system" for fixing and flipping properties..

I JEST - DON'T DO IT.

bigger pockets is a great resource. It's kind of like the millionaire fastlane of real estate. I've spent some time lurking there and felt the information was good, with a solid and strong community.

Grant Cardone also did a couple videos recently where he goes through real estate deals. There was some good information in there.

I think this is the video. There is at least 1 more

ALSO... from personal experience, I would not do a duplex. If you live in half of it, the tenant in the other half pays for the mortgage. If they move out, you gotta float the place. This may not seem like a huge deal, but if you're in it to make money, every day it's vacant you're losing.

My personal opinion is that I would go with a 4plex minimum. You can still get residential FHA financing if you live in it and you have 3 other tenants to carry the property. If one moves out (and it's quite likely they will, either through their own will or yours) you still have 2 to cover all/most of the expenses.

Regardless of the size of the property... if you are going to manage it yourself you do not, under any circumstances, let the tenants know you are the owner. You are just the manager. Any and all decisions on letting them move in/policy enforcement/rent collection is not up to you. It's up to some out of state corporation.

People generally respect those they perceive to be acting in obedience to authority - but will openly defy and test the limits of the decision maker. Landlords are not looked upon kindly by a good portion of the renter class. Simplest route for everybody is to lie.

I believe New Mexico lets you create corporations anonymously, so you can own the property in an LLC and they can't figure out that you're lying to them.

 

[EvanOkanagan]

Looking to buy my first duplex, and I've got some basic ideas from reading threads by @SteveO and some others. I've identified a couple properties, but I'm a little fuzzy on how to forecast/estimate cash flow, and what my target purchase prices should be.

For those that have residential investment properties: Can you direct me to some resources for an absolute beginner? Threads on this forum, books, etc. Anything to learn from.

The Millionaire Real Estate Investor was my bible when I started out.

Being so fresh though, not having any contacts will be your biggest hindrance of buying your first property. The best thing you could do starting out IMO is to network to find a Realtor who is also an experienced investor in your city. They'll have connections to financing, they'll likely know the best areas, and amounts you could likely see for rent in those areas-- NONE of this which you can learn by watching a video or reading a book (since different markets vary).

I would look online in your city for smaller brokerages (with 5-20 agents or so--as there will be more intimate relationships within the team rather than a huge RE/Max office for example), call them and ask if there are any Realtors that work there that have rental portfolios of their own.

Start there, and it will speed up the process 10-fold. Not only that, but you'll have someone you can call any time with any questions you need to know.

 

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[Runum]

Learn your market well. Learn the retail cost per door of the investment properties in the area. Learn the going rents in the area. Pay attention to employment and construction trends in the area. Learn the services and amenities in the area for your renters.

Don't buy at retail. Don't over leverage. Most new landlords over estimate the rents and deposits they will get. They also underestimate the expenses.

Make yourself a short excel spreadsheet that will have places for all your variables. Look at realtor listings on the internet and plug in your predicted variable numbers. You will begin to see how the numbers work and if the property is overpriced or not. You will also get better and quicker at analyzing properties.

Good luck

 

[G-Man]

i hear there are these 2 hour seminars in your local area where some T.V. celebrities will teach you their "system" for fixing and flipping properties..

I JEST - DON'T DO IT.

bigger pockets is a great resource. It's kind of like the millionaire fastlane of real estate. I've spent some time lurking there and felt the information was good, with a solid and strong community.

Grant Cardone also did a couple videos recently where he goes through real estate deals. There was some good information in there.

I think this is the video. There is at least 1 more

ALSO... from personal experience, I would not do a duplex. If you live in half of it, the tenant in the other half pays for the mortgage. If they move out, you gotta float the place. This may not seem like a huge deal, but if you're in it to make money, every day it's vacant you're losing.

My personal opinion is that I would go with a 4plex minimum. You can still get residential FHA financing if you live in it and you have 3 other tenants to carry the property. If one moves out (and it's quite likely they will, either through their own will or yours) you still have 2 to cover all/most of the expenses.

Regardless of the size of the property... if you are going to manage it yourself you do not, under any circumstances, let the tenants know you are the owner. You are just the manager. Any and all decisions on letting them move in/policy enforcement/rent collection is not up to you. It's up to some out of state corporation.

People generally respect those they perceive to be acting in obedience to authority - but will openly defy and test the limits of the decision maker. Landlords are not looked upon kindly by a good portion of the renter class. Simplest route for everybody is to lie.

I believe New Mexico lets you create corporations anonymously, so you can own the property in an LLC and they can't figure out that you're lying to them.

Watched that entire video and... Mr. Cardone is definitely against a duplex too... food for thought. It's crazy, once I started looking at 8+ unit listings, it started to click how much cheaper each unit is. I would have never even thought of looking for something that big to start off with. Thanks for the video.

 

[Denim Chicken]

Definitely biggerpockets, learn all the basic rules first and then go into specifics. 50% rule, 1 or 2% rule, how to do comps, etc. Everything in real estate is "it depends". Duplex might not be a good move depending on your city or market, some places are SFH friendly. Also know that multifamily starts moving away from appreciation and emotionally driven plays and more into financials.

Im actually about to get started on this myself, been on bigger pockets for over a year and heard a ton of podcasts and right now narrowing my market down and networking.

 

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[G-Man]

Read this:

https://www.biggerpockets.com/renewsblog/2010/06/30/introduction-to-real-estate-analysis-investing/

I trolled bigger pockets at @jon.a 's recommendation, but didn't run into that one yet. Thanks so much. Especially helpful given I didn't really understand so much of the lingo being thrown about elsewhere.

 

[LateStarter]

Watched that entire video and... Mr. Cardone is definitely against a duplex too... food for thought. It's crazy, once I started looking at 8+ unit listings, it started to click how much cheaper each unit is. I would have never even thought of looking for something that big to start off with. Thanks for the video.

It all depends on your market though. So know your market and your finances first!

You might not be able to (or willing to) jump in an buy a 4-8 unit muliplex. While the cost per unit is lower the total purchase price can be high...depending on your market.

I assume that you're also new to being a landlord and/or property manager. There's a learning process with that. Maybe for you, starting with a duplex is a better option particularly if you have a 9-5.

I'm all for larger unit multiplexes too but the bottom line is that you need to make the right decision for yourself based on your market. What might work in Tulsa might not work in NYC.

 

[EvanOkanagan]

Like others said, knowing your area is very important.

For me, finding an apartment complex over a 6 CAP is nearly impossible where I live as there's limited inventory and I've been looking for quite some time, so I'll likely have to look hundreds or thousands of miles away to get into lucrative multi-family deals.

Multi family houses and duplexes though do quite well around here and are readily available. I just picked up one that's a 10 CAP and all of my houses are netting me over 18% annual Cash-on-cash return right now (25% or higher total ROI if you account for mortgage paydown--not even taking appreciation into account).

 

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[SteveO]

I find it really difficult to talk about this topic. 20+ unit size has a fairly cut and dry evaluation process. Anything less needs a lot more touch to it.

 

[BrandonS85]

I'm in Ohio so YMMV

• Gross rents * 12 = Gross yearly income
• Taxes & Insurance = T&I Costs
  
• 10% of gross yearly income + 5% gross yearly income = Repair reserves
• 5% of gross yearly income = vacancy allowance
• Gross yearly income - T&I - Repair reserves - vacancy = Net income
• Net income - debt service = cashflow

Then you've gotta look at what is acceptable for cashflow. First property I bought was 12% on net income based on purchase price. Second one was around 15%, third was 17%. Last property I bought was in the low 30% range.

Some markets will allow you to squeak by with 5% or 6% net income. Right now I'm working on a leveraged seller finance deal that pencils in at 53% using my above formula.