New to REI. Do these numbers make sense?

Question

Hey everyone! Trying to get thoughts on a duplex house hack in the Portland, OR area. 3 bd 1.5 bath about 1240 sq ft per unit. One unit is vacant and the other rented with long term tenants under current rental value according to comps. Won’t be cash positive until year 2 after remodeling our unit and moving out with a CCROI of 4.7% on FHA 3.5% down. This includes 5% vacancy and repairs and some funds for capex. I would not be responsible for utilities. I understand the stock market on average (this year is an anomaly as gains have been pretty wild) is about 7 to 8% per year, but would be getting equity and tax reductions. Numbers are pretty tight in Portland. Does this look reasonable for an investment? I can take some financial setbacks with my income. Also, would throwing down enough to bring the equity to 20% and refinancing to conventional be a good idea or just picking up another property? Plan is for long term rentals and BRRR. I’d appreciate any advice! Thanks in advance!

Steven Foster Wilson · Answer

Its popping at the moment, not too mention our soccer club just won MLS Champs!

AJ Shepard · Answer

@Wa Chan

More money down makes for a larger cash flow.

Usually we like to find a property that has rents below market and some deferred maintenance so that after you put a little work in you can refinance.  Even though you started with 15% equity and put in some money, the value of the property goes up enough that you get most of your cash back.

https://www.realtor.com/realestateandhomes-detail/11650-NW-Saint-Helens-Rd_Portland_OR_97231_M29063-16701

Is one that looks like it could be a deal, but has a couple problems that need to be solved.  There is value in solving problems.

AJ Shepard · Answer

@Wa Chan

Sounds like you are looking in the right places.  I will say that if you are willing and able to live in a duplex, sometimes you will have to pay a premium to be in an area that fits your standards.

Just as an exercise, run the numbers on a 4 plex.  If I had the opportunity to do it all over again, starting with a 4 unit would be my one piece of advice to myself.

Tanner Sherman · Answer

@Wa Chan I don’t know how the market is there but that CoC ROI is way too low for my comfort. Any one thing has to cost more than anticipated to put you into a loss. If it’s your first deal and there’s a relatively small rehab then maybe you would be alright but for me, on the first deal I’d want to estimate an 18% ROI, anticipating that due to being naive the realistic ROI will be 4.5%.

Antonio Cucciniello · Answer

@Wa Chan I would always encourage this: When comparing a potential real estate investment to a stock market investment, decide what your lowest number of Cash on cash ROI is going to be and lowest amount of cash flow per unit.

I look for 8% Cocroi and 150 per unit cash flow. If I do that I tie the stock market (in theory) but then with tax benefits and appreciation I usually win.

Only compare what you can measure to what you can measure.  If you see the CocROI being less than the stock market, you can't guarantee appreciation or tax benefits.

Wa Chan · Answer

@Jaron Walling thanks for your reply! The comps in the zip code are either a little above or at our price. There is a duplex across the street that was 30k above our price but it does have 2 full bathes whereas ours is 1.5. Inspection soon, hopefully there is nothing significant wrong with it. Not sure how accurate  Zestimate is but it is at the same price we’re buying. We are planning on rehabbing over the year we live there, repaint, change to hardwood, landscaping, change the fence. Would you have any tips on how to determine how much a property’s value can increase after certain rehabs? Been having some difficulty with figuring that out. Thanks again, much appreciated!

Steven Foster Wilson · Answer

@Wa Chan we need to go back to the basics, what are your long term goals, does this purchase align with them?

If your goal is to have a portland investment just for the fact of being in Portlan, thats one thing. However if your looking for cash flow or fast appreciation, or affordable housing.....then I would suggest you invest OOS.

Here in Columbus OH we have affordable multi-family, a large pool of tenants, and our values have been appreciating like crazy.

Jaron Walling · Answer

@Wa Chan It's not a home run but a solid base hit from a numbers perspective. I'd assume Portland is pretty tough to find cash-flow. Are you getting a good DEAL? What do the SOLD comps look like? How much value can you add? If you're paying retail I would be cautious about purchasing this property. I would add value when rehabbing the units and gain the equity you're searching for. You can't do that if you pay top dollar at the closing table.

Wa Chan · Answer

@AJ Shepard I have run some numbers on triplexes but haven’t come across any quads in our range. Initially we were looking at a triplex but found out through our lender about the self sufficiency test which it did not qualify for without a 15% down payment. We’d like to keep down payment low 3.5% so that we have cash available for remodeling and in case of vacancy and also for leverage. Do you recommend putting in more down payment to get more units? Cash flow works out much better.

Wa Chan · Answer

@Steven Wilson awesome idea! Being in Portland I’m finding it hard to make the numbers work as well. Any good properties that pop off are pending in a few days. I definitely will be looking into OOS but wanted to get my foot wet locally to learn and get a feel for things first. I’ve heard good things about OH’s market for investing!

New to REI. Do these numbers make sense?

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