All Forum Posts by: Crystal H.

I agree with @Ron K. Sounds like something more passive works for you right now. You could sell and put it in a total market index fund. It's ok to not invest and reinvest every last penny you have in real estate if it's not working for you at this point in your life! Let your money grow passively and get back in later if you so desire.

@Tony Clark Validating to know I'm not doing something totally wrong. :) You read all these benchmarks / rules of thumb from people all over and when you run the numbers in your area nothing is even close!

Hi @Ryan Lewis - I'm also in Nashville and just purchased a duplex. Take with a grain of salt, because we are new to this! :)  

I didn't see a whole lot in Nashville (Davidson) that was above 5%, which is about what ours is coming out to. I have read most people look for 8-12%. We decided we were OK with 5% for a number of reasons: 

- Great renters already in place
- Home was already partially remodeled (but still room for us to improve and raise rent moving forward) - we have 2 small kids and aren't looking for a huge project right off the bat
- Good location for appreciation (37216/Inglewood - it appraised for $17k more than we paid)
- We analyzed a bunch of deals and didn't want to wait any longer to get in
- Lastly, we were funding this using tech stock from my day job, so moving from a highly volatile investment (could go up 10x or drop by 50% at any point!) to something more stable and this fit the bill for us

Here is a link to the rental report we built on BP: https://www.biggerpockets.com/...

Hope this helps! 

@Dorothy Moore No, we did 40% because we wanted to. We used Caliber Home loans. We waived our financing contingency and did an all cash offer, closing date in 3 weeks. Caliber was able to get evethting set for closing in 3 weeks.

@Tim Kappel Just closed on a duplex. It's our 2nd rental property mortgage. 40% down, 4.375%

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Nashville.

Purchase price: $379,000
Cash invested: $150,000

1980-built duplex in East Nashville/Inglewood (37216). Seller purchased it 6 months ago and flipped (apparently was home to a hoarder.) They added new paint, floors, bathtubs and got new tenants in place. We will cash flow $381/mo after all expenses, CapEx, OpEx, Vacancies, etc. and expect to hold for a long time to realize some of the appreciation in this market.

What made you interested in investing in this type of deal?

We liked the idea of a duplex so we could get 2 units on one transaction. We also have small kids so aren't ready to put tons of our own time in right now so we liked that it had already been rehabbed, but there's still some room to improve (kitchen, bathroom vanities, landscaping, etc.)

How did you find this deal and how did you negotiate it?

MLS, worked with our agent. We low balled the offer, went back and forth a bit with the sellers before landing on a purchase price. The property appraised for $17k over sales price (+4.5%)

How did you finance this deal?

All cash offer, but we secured 60% financing during the 3 weeks between signing the offer and closing.

Lessons learned? Challenges?

Having the ability to do an all cash offer with no financing contingency definitely got us ahead on this one (and on several others that we ultimately ended up not purchasing.) While not a crazy discounted deal, we are happy to be almost 5% under appraised value out of the gate with little to no immediate work to do!

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

John Griffith at FYKES. During negotiation we almost walked over a difference of $7k and he encouraged us not to - he was right!

I'm curious everyone's thoughts on using IRR to evaluate deals vs some of the other calcs that are seen more often.

As (new) buy and hold investors in our early 40s, my husband and I are far less concerned with what happens in the first 12 months of an investment and more concerned with the medium to long term horizon with our investments (5+ years.) I feel like using CoC is absolutely helpful on some level, but doesn't get to the end result of holding something over a long period of time and then realizing the benefit of it by selling in the future.

One answer as to why investors don't look at it as much is because I've read many people don't like to bank on any appreciation. However, when I'm deciding whether to invest in the stock market vs real estate, I sort of HAVE to take an educated guess at what the returns will be on each to make my decision. If I leave my cash in the stock market, I'm banking on X% return there, which is also a guess. And, when I'm doing an IRR calc, I'm extremely conservative (3%/year, even in this market.)

Another possibility is that it's too much trouble to forecast out and people are uncomfortable with the assumptions you have to make. Totally fair. I have taken a few personal finance courses in studying to get my CFP accreditation so am comfortable using these calcs and putting the time in to do them properly.

What is your take? Is anyone using IRR to evaluate deals? Very new to this world so could absolutely be missing something here... :)

@Sher J. Thanks for the replies. We decided to use an IRR calculation to make our decision, so that it takes into account potential appreciation and sales price down the road. You are definitely correct that it's tough trying to find a CoC return worth much in this market!

@Evan Polaski These questions were so helpful, thank you! I think we've considered all of what you listed out but is so nice to have a second set of eyes on everything.

Re: leasing - the units have new 12 month leases in place, we met the tenants and they check out. We are going to continue property management with the company they're currently using, and they do not charge a placement fee for tenant turnover (!!!) I did speak to the owner of the PM company and they own 300 units in the area and nothing raised any red flags. They are also the ones that helped the existing owners flip the house this year so have some history with the property.

Re: condition of systems - window air units so no HVAC. The appraiser said roof, water heaters and all appliances look to have a 10 year life left.

Re: kitchen upgrades - the opportunity is to replace the flooring and cabinets. Assuming no major repairs come up, the $120/mo in CapEx would go toward this and we'd do it in a few years.

Re: lawn care - this was such a helpful call out, thank you! We found out the management company is handling it and it's $90/mo for 7-8 mo a year.

@Luka Milicevic Thank you for the tip on zip codes and the context on rent vs sales price. We decided to go with a duplex in 37216 and it's just as you said - the cash flow isn't life changing but we believe the appreciation will be there and our goal really was to park some money in real estate since we're over leveraged in stocks at the moment. The appraisal came back at $17k over asking, so hoping this is the first of many deals we can find in the area :) 

@Eli Ziegler That's helpful and aligns with what we were finding as well. In the end, we decided to use an IRR calculation to make our decision so we could incorporate sales price down the road and modest appreciation into our decision making process.

@Sher J.

We're moderately debt-averse, which we know is controversial but it's also a personal choice. We have a young family and don't want to get in over our heads on debt should something go south (and don't want to be over leveraged if we decide to move to a new primary)

40% was where we felt good about the cash flow, and can be relatively sure we wont be losing money each month even if something unexpected goes wrong, and we have it sitting in the bank from a stock sell off. Could have done 20% or 30% but gave us less of a cushion.

So the answer is probably...conservatism and fear? :)  

What CoC do you aim for? I think I've seen 8% somewhere as a benchmark. At the end of the day, in this market, we feel comfortable banking on some appreciation and we don't need the liquidity right now.