Rents Only Cover Mortgage

[Stefan Gray]

Hello bigger pockets community. After months of searching for a Duplex, I've finally found one. I plan on living in one unit and renting out the other eventually moving out and renting both units. Total income from both units is $2,700 but the mortgage is $2,600. I have about $10K in reserves. I am anticipating it to take a few years before the property will be able to cover (vacancy reserves, repairs, cap ex, property management etc). I'm anticipating 10 years before it will cash flow. This will be my first investment property. I plan on purchasing more in the years to come that have more favorable margins. What are you alls thoughts for a first time property? 

[Bill B.]

The members here probably own 10’s of thousands of properties. How many of those properties do you think they wish they  hadn't bought? 5? 50? On the other hand I bet there are 1000’s if not 10’s of thousands they wish they had bought but didn’t think he were “good enough” deals at that time. 

I assume you’re paying rent now and have no tax write offs. Add those benefits.  If this property only appreciates 5% per year you’ll make somewhere between 25% (20% down) and 100% (5% down) annually. 

Imagine you plan to hold this property for 20-30 years. The returns for the first year just don’t matter, even the first 5 years don’t really matter. Run the numbers 5 years from now after you’ve moved out. Calculate the increased rents providing more and more cashflow, decreased loan balances leading to more and more principle paydown. Don’t forget all this money will be tax free after depreciation, heck you’ll probably be carrying forward losses as you profit. If the property is currently fully rented you may get a lower property tax bill as an owner occupant. Sometime in the next 5 years interest rates will probably be lower than today making lower payments all but inevitable with the lower balance. 

There are markets where you need cashflow, markets where the properties will never appreciate and may actually depreciate. That’s why they cashflow, because nobody will pay more. It’s just a different type of investing where you may suffer from inflation (higher repair costs) while not benefitting as much as prices have caps. 

You forgot to put your location in your profile so we don’t know what your market is like. If your reply is that you’re in San Francisco or NYC, suddenly everyone will say yes, obviously this is a good deal. If you say something like northern MN, Ohio, or a small town in the Great Plains, I would join those saying no.