Buying 2nd Townhome in the Same community for real estate Investment

[Pradeep C.]

Hello BP Experts,

GOOD MORNING!!!

I am sure this question may have been asked and answered multiple times before. I was just not able to search and find the needed answers, so i am trying to get some expert opinions. Apologies for the repeated question.

I recently purchased a Brand new Townhome in a developing neighborhood in the Raleigh-Durham area and leased it out as a real estate investment. Now i see that a second townhome is becoming available for sale by July 2014. This is a brand new construction as well. The price range is ~120K. The community amenities include clubhouse, gym, swimming pool, tennis courts, etc.

Is it a wise idea to investment in two townhomes in the same community/neighborhood as a REI. Any pros and cons to this approach/strategy. The area is fast developing and is located ~10mins from downtown Raleigh area. The typical time to lease out is approximately 1 month from closing.

Your expert opinions is highly appreciated.

Thanks!

[Joshua Jensen]

It isn't necessarily wrong to "double down" if your first townhouse is making you happy financially. From that perspective, go for it. Another angle to cover though... ask yourself what sort of investment this is for you. Capital Appreciation? What is your ROI on that? Steady Rental Income? Does it meet the 1% benchmark rule where %1 of the purchase price is paid to you in rent? Figuring out what has "worked" for you only matters if you know what your goals are, and how you would define a good investment had you never owned any townhouse, or ever been a part of this neighborhood.

Given the above, let me make the case against the purchase. I know Raleigh, and the $120k townhouse will most probably not get you even close to the 1% rule... $1200 a month in rent. If you look at the NC Capitol's capital appreciation over say the last 10 or even 15 years, what do you think a reasonable % increase a year would be in appreciation? 4 or perhaps 5 percent, maybe? You could find far better rental scenarios from lower priced rental units, and you could easily double to quadruple your capital appreciation in a mutual fund. Really good rental units that produce great rent a year often don't appreciate much, and boom-town capital appreciation usually happens in developments that are far to expensive for rentals.

Do it your way... but decide what you're really after first, then define success from that... before you simply do what you've always done.