Multi-Family that doesn't cash flow

[Luke F.]

I was running numbers on local properties in Denver (yes, the market is pretty hot, especially on loopnet) and there was a duplex in the 500k range.  The numbers were roughly $2,500 for rents.  Even if you put 20% down, the mortgage would be in the range of $2,300.  My question is why would someone buy this?  Outside of the $2,300, you have Insurance, tax, cap ex, management if need be, etc.  When would this make sense?

[Bryan Petrinec]

@Luke Feds, I had the same issue when I was starting out only a few months ago here in the Austin market which is also hot.  I was digging in evaluating deals and I could not understand why deals that looked bad to me were only on the market a few days.  In Austin and other hot markets, the evaluation can be based on tax breaks to offset other investment income while banking on appreciation.  

This makes it tough for folks like us just starting out, but keep evaluating deals and you will find one that works for you.  I just closed on my first duplex last week and have two more under contract.  They are cash flow positive and will still appreciate.  They need some work, but are fully rented and are generating income.  As they turn over, I will be able to force appreciation through improvements and subsequent rent increases.  

The best advice from BP is to stick to your numbers and you will find deals that work for you.