Is a duplex a good starting point?

Question

I've been doing research in a few areas a lot of the areas seem like they would be a good place to start. But there are a few that stand out to me, Rochester, NY has some properties that look good to me but I have also seen some promise in a few properties in Florida. I'm in the military so I don't have a location set in stone on where to start. I'm looking for advice as this would be my first property. The returns on some of the duplexs look to good to be true, but the city does inspections on them to certify they are good for occupants. Should I get a home inspector before trying to go any further? And are there any good mentors out there who would be willing to help me figure things out and help get me moving in the right direction?

John E. · Answer

Disclaimer: I am by NO MEANS an expert on duplex investing and I'm still just a newbie.

One of my favorite business quotes is that of Warren Buffett: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

I feel like this is very applicable in the RE investing business, as you often find ridiculously cheap properties in WAR ZONES that seem to offer cap rates WELL above what one should expect (can I get a "Detroit" anyone?) . By this I mean exactly what @Dave Savage said when he described properties with cap rates that APPEAR to be 20-30%. I also share the sentiment of one of my favorite colleagues @Michael Siekerka concerning investing in strong rental markets such as St. Louis.

It's probably better to get a modest cap rate in a better neighborhood at a FAIR price where the demographic trends seem to be working in your favor. I.E~ Jobs, money, people flow in. Crime and other negative factors are flowing out.

But hey... What do I know? :/

Dave Savage · Answer

@Jeffery Kroener welcome to BP, you'll get a lot of good info from the site.  Rochester, NY is definitely a good place to get decent returns but as Michael Seeker mentioned you have to be careful.  There are a lot of areas I could point you to in Rochester that would look to have 20-30% CAP rate but you would be lucky to break even.

Feel free to PM me to get a better idea about areas to look at, or connect with @Mark Updegraff who can point you to some good properties as he is the resident Rochester, NY BP Investor Agent and has done deals for a number of us on the forums here.

Whatever you decide, I would do research, find agents in each market to work with, and then spend the $500-1000 it would cost to fly to a market and drive it for a few hours with an agent to get a feel where you would be investing.   Once you get set up in a market and target a specific area it is easy to do it remotely, but I wouldn't do it without at least one site visit, it will save you a lot of money in the long run.  Good Luck!

Barry Cohen · Answer

Jeffery, as a new investor to the Rochester area I can agree with you that there appear to be great opportunities to find good returns. But as others here have said, the higher the cap rate, the more work you may need to put into the property, as I am am finding. As for a home inspection, even though the city does a C of O inspection, I would highly recommend getting a inspection as it will help you to determine any major expense you may run into. I am a home inspector, and I have seem to many investors pass on the inspection and end up paying for it dearly. This is a great site to get tons of info and help. Good luck with your investing.

David Stott · Answer

A Rochester NY duplex is how I got my start.  It's in the 19th ward.  It essentially landed in my lap - it was the home my grandmother lived in for 30+ years, and when she passed away my father and his brothers sold it to me for around $63k.  At the time, I was able to take a sizeable mortgage, and pay off my student loans.  Fast forward 13 years, it's now paid off and generating 700+750 in monthly rental income, and worth maybe $70k.   I put about $25k into it to spruce up the kitchens and baths, and it will soon need a new roof and front steps.  It's managed locally by my dad and brother, but I live close enough to stay involved and show up and visit tenants when necessary.  It's not problem free, but for the income it generates, it was a smart move for me.  The neighborhood is holding steady with a mix of long time residents, students, and rentals.

Rebecca Lebowitz · Answer

@Jeffery Kroener -Welcome to BP!  I have helped many investors learn the Rochester market-feel free to send me a message if you have any questions or want advice on REI in Rochester NY  :)

James Wise · Answer

@Jeffery Kroener I think a duplex is a great starting point. Feel free to PM if you need some guidance in getting your 1st investment.

Jeffery Kroener · Answer

Thank you for the help. I'm hunting around still and will be sure to look deeper into the aspects of each property before I make a final decision.

Jeffery Kroener · Answer

Thank you @Michael Siekerka. I will definitly look more into the west. I'm willing to be flexible and would like to start out small so I can recover if something is to go wrong. I appreciate the advice and will be passing on the ones I have looked at so far.

Michael Seeker · Answer

Hey @Jeffery Kroener - welcome to the site!  I'll go out on a limb and say that if the numbers look too good to be true, they probably are.  Spend some time researching the areas, rents (actuals - not what the listing quotes), crime rate, schools, etc.  You'll probably find that some of the properties that look the best on paper will be an absolute nightmare to manage.

As for area - if you've got flexibility to look anywhere, then you should check out some cities further west than NY and FL.  I know St. Louis has a pretty strong rental market and there are plenty of other midwest towns that will offer good returns.  Also if this is strictly an investment (i.e. not owner occupied) you'll want to make sure you've got a clear idea of what the banks will be looking for from you.  Here's a link to the typical terms you'll see for a 30 year mortgage.

Is a duplex a good starting point?

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