All Forum Posts by: Dan B.

Don't count it out yet. It doesn't look good as is, but sometimes that's how you get a good deal - it might not be so obvious. I'm closing on a similar duplex that needs some work in Minneapolis for a bit under $200k on Fri and I expect it to cash-flow $800/mo after a light rehab.

If you can negotiate a price somewhere close to $200k, rent it for $1300/side and have the tenants paying all utilities, you'll be cash-flowing! Plus assuming you are paying some PMI in the beginning, you can get rid of that after a couple years that will make it even better.

Just make sure you run the numbers, and then run the numbers on 20 or so others just to practice and come back and look at it again. You can do all that from your couch in a couple hours. Good luck

I agree with @Aaron Montague - this is not a deal. At least not with the current numbers.  Plus, we don't know how much you are planning to put down, if you are less than 20% you're going to mortgage insurance as well. 

However - if this is a nice area, and the units are identical, the rent on the one side is way low. It's hard to know without knowing the area. I would spend some time on craigslist to find out what current market rents are. From what I found in a quick search, a 3 bed place in Madison could go for $800 or $2000 depending on location - you need to know. If market rents are $1300+ per side for this place it may be an ok deal after all, but I'd probably offer lower yet. If this is the one I think it is, the duplex next door sold for $320k last Oct, but it is bigger and much more updated. 

As @Paul Garcia mentioned, reserve requirements can add up fast and your debt to income will likely be out of whack pretty quickly unless you have extremely high income. Most lenders will not count the rental income until you have 2 years experience as a landlord/investor. So, looking at a bit larger complex might be a good idea. 

As for deals in Minneapolis, there are very few on the MLS these days. I'm closing on a duplex on Friday and have another short sale in the works, but there are not near the number of deals available like there were 18-24mos ago.

If you have lived in it for 2 years, you won't have to pay any income tax on the gains. I would definitely sell it. If you can rinse and repeat that would be great! I'd also consider looking for a nice large multi-family to 'house-hack'. In my area you can find some pretty nice duplexes - 3/2/2, 2000 ft2. Or just buy some good cash-flowing rental properties.

@Sean Orourke

I 'house hacked' for quite a while when I was single and learned a lot about what to do and not to do as a landlord. I currently also have a duplex, am closing on another one (duplex) next week, and have yet another duplex under contract.

Welcome @Sean Orourke I'm also from the Minneapolis area. Sounds like a great plan - pretty similar to mine!

Wait - so you're telling me that I could borrow an additional $225k and have $50 less in cashflow. So to make that worth it, all I need to do is find some way to make $600/yr on $225k? That is only a 0.27% ROI. I'm pretty sure I can beat that! Worst case I pay cash for a couple more properties and make ~8% Sign me up!

According to Wikipedia, risk "is the potential of losing something of value". The something is the key. The definition may be the same for all, but the risk is multifaceted and you can structure your investments to minimize certain risks. You are worried about losing cash (as am I), by refinancing out all of your investment you have minimized that risk, but you pay the price of having increased expenses (mortgage), and a risk of foreclosure (hopefully very small) for that leverage. Others often see the risk as losing the property, and/or their credit. I see that risk too, but I'd rather lose a property and keep my cash than lose a large portion of my cash and keep a property. Or worse, lose both a big chunk of cash AND the property!

@Arlen Chou

Congrats on the appreciation. You've done well on that property - but I could hardly call it a buy and hold investment. It's your personal residence. You may have now received cash on your refi, but unless you are paying yourself rent, you do not have a cashflowing asset, and until you sell it you haven't made any real money. If you paid cash then you're only out taxes and insurance which I'm sure is not insignificant. But if you have a mortgage you're also out the interest paid. Your house is more akin to buying raw land with your profits coming from the sale. Only thing is you get the benefit of using the place to live in the meantime - and it sounds like a nice place!

I don't think anything with a $ value is a viable'rule of thumb'. Markets are always change, inflation happens. Even if it was true today, it won't be for long.