"Worth" It? (CA Duplex)

[Gary F.]

Hi, folks.

I'm in CA Bay Area, where rents and prices are very high.  I'm considering selling my private residence which a RE agent said should fetch about $800k.  Decent area duplexes (3/1 + 2/1) are about $1.0 mil. After selling my home and fees and all, my net profit should be about $730k, leaving about $270k loan. I plan to be owner/occupant in the 2/1 and rent the 3/1.  So:

Est. Mortgage =$1300/month

Prty Tax (stupid high in CA)=$1200/month

Insurance =$100/month

Est. Total monthly costs=$2600

Est. Rent/unit= $2400 for the 3/1 unit

Given that this area, prices are rapidly on the rise, the equity should increase and could possibly stabilize in the next 2 yrs.  Of course, I've no idea but I'm going in with that in mind.  Even since 2013, prices have gone up about $100k on similar properties.

Ive read about the 50% rule, but in this area, unless you're Mark Zuckerberg or Larry Ellison, its next to impossible to put that much down.  What do you folks think?

[Abhay K.]

Let us clarify some confusion about CA first.

-property tax rates are low 1.2-1.5%. Your 1mil property will be taxed at higher tax in texas (2.6-3.3%) and elsewhere.

-prop13 keeps property tax rate growth at 2%/yr while properties appreciate at 6+%. In other states each year your taxes go up if property appreciates while rents may not grow as much.

This means, if you buy and hold long term your property taxes will stay low even as appreciation allows you to cash out refi and get access to your capital. 

Look at return on equity (ROE) metric when you have predominant growth from appreciation and not cashflow. principal paydown itself will be around 1k/m and that will reduce ROE. when this happens below a threshold you refi to cashout. 

I think this could be a good investment. Are schools improving in this area? What are your exit strategies ? 

Get a CPA to evaluate how your depreciation, insurance costs will be calculated in this case since you occupy a fraction of duplex. Keep separate expense record for rental unit.

Come down to @johnson's meetup in san jose on 17th to meet local investors.  http://www.biggerpockets.com/forums/521/topics/206...

Good Luck.