How to Invest in Duplex/Single Family Homes in Expensive Markets

[Josh Koukal]

Hi!

So I am looking at getting a duplex for my first rental property (living in one unit and renting the other). If you look at my other post, it'll pretty much describe that in the Greater Seattle Area that housing is pretty expensive especially off construction worker wages. I am looking at getting an FHA or VA loan to fund the property with the low to no money down financing (since most lower end homes will be 300+K, so that means 60+k down payment). But whenever I do the math for any rental properties to see the cash flow and how viable of an investment it is, the math never seems to work out in my favor. Now I am doing this by hand (figure its good to get the practice) but no property that I know of (correct me if I am wrong) will rent for 3-6k a month (using the 1 or 2% rule to screen properties). Is there something I'm missing? Any help would be greatly appreciated.

-Josh Koukal

[Derek Dombeck]

Josh,

You are not missing anything. You live in a market that does not cash flow because Single family through 4 Unit buildings are valued using comparable sales. Supply and Demand has driven prices up beyond what collected rents can pay for when you buy at current prices. So, instead of buying, consider controlling property with options and leases. You need to find existing Landlords who don't want to manage anymore, but who also don't want to sell right away because they will pay a fortune in capital gains. Structure a Master lease with the owner making you a Tenant. Then you sublease to your tenants. The lease numbers are structured to give you cash flow based on current rents. Secure an option to buy the property later, but lock in the purchase price now.

Happy Investing

Derek Dombeck