3 Midwest duplex OR 1 New York duplex?

Question

With $150,000 to invest, I’m looking at 3 duplexes in Minneapolis/St.Paul (where I live now) each $200,000 cost that cash flow $350/duplex per month so $1,050 total, or 1 Long Island duplex (where I’m from) for $550,000 that cash flows $650/month.    Net Income includes PITI, 8% maintenance reserve, 8% vacancy reserve, property mgmt, and landscaping/snow.    Do I want to have 6 units over 3 properties, therefore more tenants, furnaces, roofs, liability for $400 more per month, or 2 units at 1 property and less tenants, infrastructure?    At the end of the 20 year mortgages the 3 houses would be worth $600k and the 1 house $550, both will get average appreciation.    What’s your thoughts, what would you do, and why?

Bruce Runn · Answer

@Daniel Anshus

@Frank Hinck

I'm going to agree with Daniel.  Picking $200,000 for a duplex in MPLS is a bad comparison/model as they don't exist for anything you'd want to buy that isn't a total gut/reno but as a GC, you'd be a perfect candidate to BRRR but you'll need more money for the loans.  Your numbers for expenses/cash flow based on your parameters really don't fit a reasonable profit equation so I'd make sure you are working with someone to walk through different scenarios.  Since you are in the industry, you have a much better up side than most.

Daniel Anshus · Answer

@Frank Hinck I would be interested where you are finding 200,000 duplexes in the area. Those have to be in areas that many investors don’t invest in. Most duplexes in the area are 300-400 even off market.

Alexander Szikla · Answer

Personally, I am very bullish on New York and NYC itself. Sure it suffered due to COVID, but you want to buy when there is distress. I think all the folks who moved away are already getting bored and already coming back. Plus, the vaccine is getting rolled out which will curb the spread tremendously. Now is the time to buy.

Cap rates came all the way down to 3% (or below!) during the "boom" times but COVID has loosened everything up and now 5% can be had in Manhattan, 6%-7% in Brooklyn and even 8% in the Bronx. Nationwide rates hit a low of 2.7% - so there has really never been a better time "spread" wise.

Moreover, the FED has printed so much money (~25% of all dollars in existence were created during COVID). This has been reflected in real estate nationwide except NYC which is a laggard. We know inflation is skyrocketing and RE has taken off, New York is a matter of time. Get on the rocket before it takes off.

Long term, I think NYC will come back as it always has time and time again. I am also a great believer in investing when there is distress and deploying capital when you can.

If you are looking for yield in the short run, Manhattan may not be for you. However, it is certainly the most attractive it has been in years from a cash flow perspective. If you are seeking out asset accumulation and equity appreciation over the long term then there are certainly fortunes to be made. And there is still plenty of cash flow opportunities in the outer boroughs if you buy right!

Account Closed · Answer

My head immediately goes to your experience in being a landlord and appreciation considerations.

For the former hile 6 doors is a LOT more potential headaches than 2. Since I have yet to purchase my first property, I would likely go with the 2 doors in LI. However, if you have experience or may manage the properties yourself now or some point in the future, I would say the Minneapolis might make more sense.

As for the appreciation, you mention that both to have decent appreciation, but I think this is a WAY more important consideration than the cash flow (since both propositions seem to have decent numbers). What are the crime rates like in each area? How are the demographics changing? What is the proportion of renters to owners? Which do you see having a great long-term value? The key here is that wealth comes from appreciation, not cash flow. Cash flow pays the mortgage and keeps a roof over your head.

Honestly, I think you have a really good predicament here as I think both options seem pretty decent based on the information you provided. Another potential option is to bring in a capital partner and buy both! Good luck

Christopher M weger · Answer

3 Duplex's in MN, hands down!

Daniel Anshus · Answer

@Frank Hinck selling one right now that at current price and current rents cash flows approximately $600+ with 15% reserves and owners actual expenses.

Frank Hinck · Answer

@Daniel Anshus

I don’t see much for $300-$400k that cash flows $200/unit/month and I’m constantly analyzing deals.  I see you posting tips & articles on LinkedIn all the time, send me something good if you see it come up.

Bruce Woodruff · Answer

I would also take into consideration the laws and regulations in each area as they relate to landlord friendly vs tenant friendly. To me these are huge deal-breakers, both now and down the road. I know NY is not a landlord friendly state, don't know about MN. Definitely worth checking out.

Raven Reinmuth · Answer

I personally would go for the 3 duplexes in Minneapolis because you live there and are local, they make more cashflow, and even if your plan is to buy & hold they very well may be worth more if you end up selling down the road.

If you are not self managing then having more units just means that the risk is spread out more, 1 vacancy won't hurt your bottom line as much if it is 1/6th of your income vs. 1/2. The only upside to the one in New York in my opinion is that it may be a safer market for investing/appreciation in general. However, I am not super familiar with New York real estate.

Another thing to consider if you are concerned about more overhead is the general condition of the properties. If the 3 midwest properties are older and are going to need significantly more work and the NY one is brand new, that could be a factor. If they are in approximately the same condition, I would go with the 3 duplexes.

3 Midwest duplex OR 1 New York duplex?

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