Guidance on Duplex Purchase

[Josh Mayfield]

I'm in Spokane, WA and like many other markets, single and multi-family property prices are high. I purchased a duplex last year that was priced about $20k less than similar properties ($385,000). I admit that I was eager to get into the market here and jumped the gun on this one. At current market prices, I don’t see how it’s possible to get properties to flow positive as rental rates haven’t kept up. I’m not able to get it to cash flow positive and in fact, anticipate needing to feed it an average of $2200/yr. for the next 5 years. Probably would need a new roof in the next 3 years.

Wondering if I should cut losses and sell it; should be able to sell for $395k. Since purchasing this property, I’ve advanced my education via Deeper Pockets and understanding of the local market. Will continue to pursue markets outside my immediate area as well as looking for off-market buy opportunities. Would appreciate any feedback. I’ve included some numbers below

Purchase Price: $ 385,000

Amount Financed: $ 288,750

Down Payment and Purchase Costs: $ 106,000

Gross Rent: $ 2,342

Operating Expenses: $ 949

Net Operating Income: $ 1,393

Loan Payments: $ 1,754

Cash Flow: -$ 361

[Clayton Silva]

Hey Josh, first things first, $361 dollars a month is so much cheaper than a formal education, and what you've learned from this one deal is likely going to be invaluable and catapult your investing to the next level.  

If you were my client, and I was advising you, I would look at a host of things:

1) Are you a high net earner?  --> can this property have significant tax benefits for you and allow you to recoup your "losses" at tax season? Is this property going to put you under financial duress and if not, what do you anticipate the value to be in 5 years?  Is that appreciation worth the relatively small fee you are paying now?

2) Is this going to hinder you from buying more rentals? --> if your DTI is maxed out, can you switch to DSCR or commercial? If it doesn't hinder you, then can you buy another better one to offset the losses and keep both?

3) Can you pivot strategies? Could one of the units be furnished and rented out on Airbnb or to insurance companies for temp housing or to traveling nurses etc. to generate more revenue? Could both?

4) Can you move into one of the units yourself (if you don't already live there) and drastically reduce your own living expenses by enough to offset the "losses"?

There are a host of other ways that this could be a great deal after all!  No matter what happens, I would love to connect just so I can stay updated on whatever you decide to do!