DECISIONS DECISIONS! Which property to buy?

Question

Hello All!I am on the verge of making my first offer on a rental property, but need to decide between two great options. The First: Is a newly remodeled duplex walking distance from the college campus. It would produce about $593 in net monthly cash flow, I would not have to put too much work into it, and since it is walking distance from a University it would consistently remain rented (I see this as the safer option).The Second: Is a fourplex which is currently 100% rented. Upon doing my analysis I could make about $2000 net monthly cash flow. However, I am not able to see the current state of the units, and being that it is a fourplex, I want to be careful to not bite off more than I can chew for my first investment. Then again, more risk more reward.Would love to hear any input you guys might have hereThanks!GB

Deanna McCormick · Answer

I really would like to say a duplex I would never be interested in I don't know why just is not worth my effort.A 4 plex is basically a super start It probably still shares 1 boiler, 1 water heater and has 1 parking lot, 1 roof and 1 property tax cost and 1 insurance cost.. you split it by 4 and cost per unit is relatively manageable. and updates are easier to maneuver you pick and choose as someone moves out, Whats the cost per door. Est 233 ,, divide by 4 = about 58 each.. hard to compare the duplex you didn't include price,, so ya do the math but personally I put my efforts towards the 4 plex.Honestly if the guy is 100% rented and his rents are close to market you can figure the interiors command that price and are probably pretty decent.YOu can start this property and do very little until you have a vacancy, and then decide what you want to rehab, otherwise your set, and can do some exterior, yard and common area fixes first which will attract and warrant rent increases to current units. Why's the guy selling?? how long has he had it??I'd go after the 4 plex I bet chance of getting another duplex is around the corner, another 4 plex a lot farther down the road. Good luck

Michael Noto · Answer

@Gaston Barua The realtor in me would recommend that since this is your first property you should not buy a property you do not have interior access to.What kind of area is the 2nd property in? Just because the numbers say you will net $2000 cash flow doesn't mean you actually will especially if the property is in a suspect neighborhood.

Stephen E. · Answer

@Gaston Barua It is difficult to tell without knowing things like purchase price of these properties, projected rents and expenses, and the quality of the areas that they are in. I would look very carefully at the rent to value ratio to get an idea of how much rent these units will earn relative to their purchase price. One thing I do know is that you are new and a duplex is a lot less to take on at the outset than is a fourplex. So of the two I would see the duplex as being more suited to your needs, but you really need a better idea of the fundamentals. How much capital do you have to invest and how many units do you want to buy? Where does this purchase decision fit with your overall program? I would think very carefully about these questions before proceeding.

Gaston Barua · Answer

@Mike Austin Yes, 50% rule considered, all expenses, and debt service payment as well. However, this is assuming I am able to get my offer accepted which of course I will not be offering the list price, but at a minimum 10% discount depending on the condition of the units which I want to see before I buy of course. The property was initially listed at 250k but recently got dropped to 233k.

Gaston Barua · Answer

@Deanna McCormick thats a great tip! Again, this is my first fourplex and one of my first investment properties. I havent made any formal moves yet but have told my agent I am interested in the property. Just wanted to get some pointers on how to proceed and make sure I dont run into any major issues right off the bat.

Deanna McCormick · Answer

You say you can't see inside of 4 plex, but you can check permits and the exterior. Is this contingent on offer. If offer is made can you do inspection pending.. ??QUITE weird, tell owner you'll act like the heat guy you'll just do a quick walk thru of apartments. but I'd make sure I was able to see the boiler and other mechanicals before I go any further.I'd much rather have the 4 plex if it has enough parking. Better cash flow, less risk of 50% being down for vacancy. Work with that seller and get inside even if it cost's you a couple of bucks to take a peek.I sold a 6 plex and 5 plex, all occupied, just told tenant I was doing inspection for my insurance, and my "agent" (buyer) did a quick walk thru. worked each time.

Mike Austin · Answer

Do you mean net cash flow? After all expenses? Are you following the 50% rule etc? Just curious!

Gaston Barua · Answer

Hello @Elizabeth Colegrove! I would not feel too confident putting in the work myself. I would ideally like to BRRRR this property, but would probably go the contractor route. I do agree with you that a great deal of value can be added through rehabbing a property which can lead to better cash flow. Thanks for the input!

Elizabeth Colegrove · Answer

Do you want to put in the sweat equity? What are your goals? Personally the husband and I love the second as there is alot more room for an equity play. In addition I have found flips often are lipstick so I would rather get the undone house and do the fix myself. Than have to pay top dollar and still have to make a ton of fixes. On the other hand, we have totally been out a master bathroom for 6 months as we slowly repaired it. Spent our first month of homeownership redoing our house and spent our first night with no water since the laundry room plumbing exploded in my husbands hands as he tried to hook u the washer. So... the fixer definitely has its moments.