I need help with calculating Buy & Hold Investments (Multi-Uni)

[Jordan Turner]

Good Day all,

I`m a 24 year old professional looking into buying a Multi-Family Unit in the Philadelphia as my first investment property. My goal is to purchase a duplex in a somewhat safe location,  with one unit at least being a 2br and one full bath, $300 cash flow from each unit (after taxes and expenses), while also gaining a 7% appreciation rate. I currently am qualified for a grant loan that will allow me to purchase a home with 3% down/4.25 interest rate/30yr mort. I have a realtor and we have both been looking at houses and plan to go on tours by the end of this week. I am not as worried when it comes to fixing up the house because I am more than willing to put in some sweat equity and my uncle being a contractor who is willing to help. My preference when it comes to the purchase price is not going above $90,000 because I want to be able to fix up the house to gain more equity in the long run. My real estate agent however would like me to look at multi family properties that would only need minor cosmetic work and that already have tenants in them. Houses in the 100,000-130,000 range. He basically says I should start out with less headaches being that it would be my first investment. Idk how I feel about that.. I really would like to start out purchasing less and I've heard people say its a bad idea to inherit tenants. Thoughts?

For the past couple of months, I have been engrossed in self studying and researching anything I can about real estate investments. The one thing that I am stumped on though is calculating the investment properties.. If anybody can help me out with that it would be awesome. I am open to any and all advice on here. Please be straightforward with me. i want to learn.

Thanks

[Jaysen Medhurst]

Hi @Jordan Turner, good on you for getting started with clear goals in mind.

Your agent has a good point about starting with something that needs less work. It is probably worth seeing what comes up, run your numbers, and be strong in your due diligence. 

I do think you you have your expectations set unreasonably high. $300/month cashflow and 7% appreciation is not going to happen. Most investors shoot for $150-200/door CF/month. On average RE appreciates by 2-3%/year. Sure, some markets are on fire and see much higher appreciation, but there aren't any $90k properties in those markets and they rarely CF.

Typically, you get 1 or the other--CF or appreciation. Think of them on a sliding scale. More CF = less appreciation. I'm oversimplifying, but would hate for you to pass on a great deal because it didn't meat criteria that are out of whack.

One other thing to consider is looking at 3 or 4-family properties. Duplexes can be very hard to make work, because you only have 2 units to spread the fixed costs.

Good luck!