Which property do I choose?

Question

It's a snowy Sunday in Baltimore! So far, more than the 1inch they called for...and I just got back from Dundalk to take a 2nd look at a 2-unit I'm interested in.

A landlord I know has two properties that I looked at today:

**Property #1: 2-unit duplex:

2 bed/1 bath apartment on both levels.

Shared basement.

Separate utilities.

Off-street parking

Furnace/ no central AC

Asking $79,900

According to contractor, needs about $4K in work.

Rent could be $800-$835/month PER unit ($1600 or so per month)

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**Property #2: Cape Cod single family home

Asking $89,900...said right off the bat he'd take $84K.

Just a few minutes from duplex, so same general area.

3 bed/1 bath, but must pass thru one room to get to 3rd bedroom.

Off-street parking, nice yard, cute neighborhood.

Needs about $3-4K

Heat is by oil and it is not working. The owner mentioned he may replace it.

Currently vacant. Owner last was getting $900/month in rent, but that is low.

I looked on Zillow for rent comps and couldn't find any currently for rent in that neighborhood.

My guess is I could get around $1150/month.

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I will be financing with a mortgage.

Clearly the duplex will cash flow more because I just know the Cape Cod can't get $1600/month in rent...not in Dundalk, MD.

My dilemma is having that single family home that tends to bring in a longer-staying tenant (so I hear). No more complaints about noise of their neighbor upstairs/downstairs like in the duplexes. Generally nicer neighborhood for the Cape Cod.

There is a house for sale directly across the street from the Cape Cod for $137,000. And he's only asking $89,9K....and it doesn't need too much work to shine again.

Which property do I make an offer on???

Aaron Montague · Answer

Never be afraid to walk away.  Sometimes the deal isn't for you.

Edward Burns · Answer

Congratulations on getting the duplex under contract.  Best of luck with the deal and keep us informed.

Nicole A. · Answer

I now have a ratified contract for the property at $72,000. No closing help. Now I just hope the tenants move out and that I get through closing!

Nicole A. · Answer

Thank you everyone. I knew logically the duplex is the better choice. Part of me would just like some SFHs to add to the portfolio too.

I put in my offer of $72,000 for the duplex. I'm waiting to hear his decision.

I did some online searching and found him on LinkedIn and messaged him with my seller finance idea for a year. He did not respond, so may not be interested in any route except for cash and traditional buyers.

Steven J. · Answer

If you're choosing one go with the duplex. Most reasons are up here, I didn't read them all, but a plus with a multifamily is if you lose one tenant you've only lost half your income. That right there, and with your numbers, says to me its the safer bet. You may have more turnover but if you are on top of it and market correctly you should be able to fill those vacancies before they are vacancies.

I'd love to hear your choice!

Terry Hershberger · Answer

If your rents and other info is correct, the duplex is a no-brainer.

For the SFH, I understand that one is for sale for 137 but, asking price and selling price can be very different. I would ask the realtor to run you some real comps that have sold in the last 30-90 days. That will give you a better idea how good of a deal the SFH may be.

Nicole A. · Answer

Ahh I see what you're saying, Aaron. Thanks for the idea.

So far, I put in my offer for $72K on the duplex. I'm getting a home inspection (especially because the power's off, so it needs to go back on). The seller's agent tried to sway me to not ask for the inspection because he might take the cash buyer's offer instead which doesn't ask for an inspection (apparently).
	
	I told her that if he chooses the other buyer because of no inspection, that's fine by me, but I prefer to do it. He has a different seller's agent for the Cape Cod who I contacted to talk about offering a seller finance deal (pay X amount up front, pay him monthly for a year, then I refinance out maybe and pay him off). The agent said right there that he would not accept any seller finance deals because he's "not in the financial position to do that". Too bad I don't have his direct contact info; i asked him for his number but he'd only give his agents' numbers.

If he does reject me for the duplex, then i'll put in a traditional offer for the Cape Cod...maybe.

Christina R. · Answer

@Nicole Williamson  cant wait to hear about this tomorrow night

Aaron Montague · Answer

@Nicole Williamson  He has a house, you have cash. I would offer to split the profits on a flip. I imagine the deal like this:

You pay $20k for renovations, he contributes the house to the deal. Assuming it will sell for 137k, your profit would be about 27 or 28k. That assumes about 7  or 8k to a realtor.

The contract would structure as follows:

First 80k to the house owner

Next 20k to you (covers the renovations)

The remaining, 37k in this example, goes to each of you evenly after closing costs. I figure 13.5k each.

Why this works:

The house owner makes 93k+ on the deal. More than just selling it.

You make 13.5k on a 20k investment. Not too shabby.

Why it doesn't work:

Repairs and upgrades can't be done for 20k. And the repairs need to get the house to a comparable state, preferable better, than the comp you mentioned.

The guy is adverse to non-standard RE deals.

Before you do anything, get that Duplex :)

Andy Collins · Answer

Get the duplex under contract before he changes his mind,,maybe its different there, but in the Dallas area you can't get a good deal on a duplex

Which property do I choose?

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