ROOKIE! Would you ever buy a duplex that was just breaking even?

[Kristin Riker]

VERY GREEN (bought my house in 2016, sold July 2022 moved back in with my parents, netted a very nice profit.

My offer was accepted on a DUPLEX in a popular town close by. Great rental area, both tenants are looking to stay.

House price: $650,000

Down Payment: and is $165,000 (25%)

Taxes: $16,900

Current Rental Income: $4350 (both units)

If I raise rent on both units by $100 each I will be 'breaking even'. Tennants pay for all utilities.

This house needs some TLC. From what it looks like it needs to be cleaned up (power wash, minor landscape) from the outside and EVENTUALLY I would like to renovate the units.

My question is, is it worth it to purchase this home with the tenants paying the mortgage and taxes (no cash flow) knowing that with renovations I can increase the value of this home. I'm looking to hang on to the house for a long time, not a quick flip.

[Greg M.]

It all depends on your investing strategy. There is nothing wrong with investing in a property that doesn't cash flow or even negative cash flows. You have to factor in appreciation, what rents are doing, and how improvements would affect the value and cash flow. 

I'd have no problem with zero/negative cash flow in an area that has historical appreciation and rent increases. Zero cash flow and a $650K duplex today might be a $500 positive cash flow and a $750K duplex in 5 years. 

You also need to factor in the principal reduction. Even at zero cash flow you have someone paying your mortgage for you and creating wealth for you.

And breaking even should include CapEx and vacancy, not just mortgage and taxes.