Does this deal make sense.

Question

so I'm looking at getting my first rental property.

I will be buying a duplex from my grandpa and residing I'm one side.

It has a long time tenants that he has never had problem with.

I am offering 200k and will be financing with a VA loan. Which will create roughly 20-40k in instant equity.

The tenants pay all utilities and the expenses come to around 1180$ a close estimate and might be less.

The tenants will be paying 900 in rent and I will be covering the difference for property tax and what not.

I plan on residing there while completing school than moving out at which it will than bring in 1800 which is about 300$ per unit for cashflow.

Does this sound like a good deal for getting started?

Brent Coombs · Answer

@Brent Breitbach, no. This only sounds like a good deal for your grandpa, and I recommend you bow out from it at that price.

It would not be ethical (or legal?) for you to get the tenant to pay part of the Taxes - or your utilities and other expenses (in addition to their $900 rent) if that is what you are suggesting. [Not legal or tax advice].

Even if you lived elsewhere and were able to rent out both sides, $1800/m (less than 1% purchase cost) will not cover your expenses. Or have I missed something?

Welcome to BP. Please keep asking, and sharing your thoughts. All the best...

Brent Coombs · Answer

@Brent Breitbach, thank you for your service. God bless...

Brent Breitbach · Answer

Ok I see what you mean by taxes. No I would not be charging them any tax fees. 900 would be their rent. The mortgage would be roughly 940 property tax would be around 200 a month. These are estimates as nothing official

By me covering the difference I meant different  in the rest of expenses.

I'm still looking at comps in the area and trying to get an idea for that neighborhood.

Honestly my gut says offer 180k and I might.  I still want to talk to a agent in my area.

And I know he will profit from that. He has been in the property for 15 years.

And I'm okay with eating a little bit of my cash flow on my FIRST property. Because it is a zero down va loan. Since I'm getting out of the military and moving back to oregon.

I'll keep this post updated.

Joe Villeneuve · Answer

When someone uses the words, "I am offering", that usually means ...I am offering.

If you would have said, "I am thinking about...", I would not have assumed you "were offering".  My appoligies.

Every deal looks good until you get hard numbers, so putting in front of REI asking them if the deal looks good, is asking them to assume you have already gotten the info you need in your own mind to make that decision to move forward, hence the use of the words, "I am offering...".

Gut feelings have no place in REI.  It only leads to rationalization. which leads to losing money.

If I missed your point, again, I appoligize...however, maybe you missed to point of asking the question here to begin with.

Brent Breitbach · Answer

1. The decision being made on estimate is going forward to get hard numbers

2. Since when is a gut feeling to offer less a bad thing?

3. I said I still need to meet up with an agent to get to know the comps for the area.

4. I'm not accepting negative cashflow. Because I haven't accepted the deal.

5. You missed the whole point of this post you are acting like I have pen to paper and am about to make this deal.

Jordan Sparks · Answer

Hey Brett, I'm a real estate broker here in Salem and I also live in Keizer.  What part of Keizer is the duplex located?  Sounds to me that this is an amazing deal for you.  As of this moment there only 1 ACTIVE 2-4 unit multi-family property listed on the MLS in Keizer and 34 total in all of Salem, 13 of which are listed under $200K.  I'm guessing if it currently rents for $1180 you're looking at a 3/2 over 1000 square feet, with garage of some type?  If that's the case and the place is in pretty good shape, you can safely say this property is pretty easily worth $240-250K.  What area of Keizer are you looking?  I've personally been looking for a multi-family unit to purchase/live in and would jump on a deal like that in a heart beat.

If you ever have any questions about real estate related stuff in this area I'm happy to help.  Good luck!

David C. · Answer

Hmm maybe I'm not understanding?  If that 1180.00 is the payment and taxes and insurance then you'd be living for 280.00 a month plus utilities?If that's the case you can't live anywhere for that cheap!! If you were looking at both sides being rented you'd have positive cash flow from day one with it's sounding like zero cash down? That's unheard of in portland and I imagine almost impossible in salem as well. It also sounds like with long term renters the rent might be under market with room for modest raises after your living there and getting your feet wet. When your new having it rented makes you feel safe, one less scary thing to worry about when your getting started. I would mostly be looking at the condition and what's coming up in the way of maint. and repairs? If you don't have cash on hand those are the things to be aware of. Based on what you've shared if this was something available to me and was within 30 minutes of my home. I'd buy it right now! Buy anything with 0 cash down and positive cash flow from day one. I will tell you all the people from the midwest etc. are well intentioned but here in the Portland area your not going to be able to buy a thing using all the 2% or 1% rules etc. In this area it's just not happening.

Cliff Harrison · Answer

Is the $900 market rent - can you raise it by adding value to the property or just making market adjustments?   A $1800 rent income on a 3.5% down payment $200,000 property will be very thin and possibly negative cashflow under most models/assumptions.

Please make sure you  know exactly why you are doing it before you invest.  Such as very favorable hard comps.  You may not have a good model yet for estimating capex and other expenses that will come over time.  Expenses tend to be underestimated in deal analysis.

That said, look at some other deal analysis posts where deals have been presented for comment.  Note the information that is included, and make sure you know that information.   That will also improve the quality of the feedback you receive here.  What are the taxes?  The insurance?  What is your P&I payment?  How much down? Maintenance expense budget?  CapEx expense budget?  Vacancy (if a long term investment)?  Age of HVAC and roof? Age of building?  Condition of plumbing, electrical, and appliances?

Also most people won't know the market like your local professionals.  Is there upside? Is it in a growth area?  Are the demographics good?

Good luck and thank you for your service.

Does this deal make sense.

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