All Forum Posts by: Derek Luttrell

Hi Everyone, 

I've read several comments lately where people express intense concern for properties listed for under $100,000. My question is, aren't there some markets out there (especially Midwest) where it's perfectly possible to find a suitable duplex for $60-100k? Is it always a red flag across the board when a duplex is listed for under $100k? 

If anyone reading has had success building their portfolio with duplexes in this price range, I'd love to hear about it. I understand that properties in this price range that rent for around $600/side may attract lower quality tenants, but I am intrigued by the more affordable down payment and the fact that the cash flow makes it possible to recoup my initial investment in 3 years or less. 

@Bo S. it does come down to DTI, yes. My lender knows I have more than enough in savings right now to cover 25% down and a year's worth of payments on the loan, so they pre-approved me just a couple weeks after I had just closed on my first primary residence.

While roommates may not count as income in a lender's eyes, what they will do is help you expedite your savings for a year or however long it may take for you to have enough cash saved up to help you qualify in the near future. 

I will add that my condo building has only 3 units, and while it allows renters, both of the other units are owner-occupied. I could see problems in large buildings with dozens of units and stricter associations. 

In my market, I am too late to the party to buy any multi or single-families in the city, so condos are what I have left to choose from. I bought a condo because I found BP and didn't want to rent anymore, but condos will not be how I build my portfolio from here on out. I just needed to start somewhere in the market that I'm in.

@Maria C Quimpo since it was my first purchase and I knew I'd be living there for at least 2-3 years, I looked for something close enough to work to ride my bike to. I ended up Ukrainian Village on Chicago Ave, about 2.5 miles west of my office. In the winter, there is the 66 bus that will take me straight to and from work as well. 

While looking, I also wanted to make sure it was in a desirable area and living space for renters. Chicago Ave is steadily expanding and improving, and I'm a mile or two from all the Logan Square/Wicker Park fun. Especially since I've established a proof of concept by having two roommates currently paying $900/month, I don't have many concerns with getting it fully rented in a few years. 

This is exactly what I am doing here in Chicago, where I was renting a $2,000/month apartment with a roommate, but one month ago I closed on a 3 bedroom condo. I have roommates in the other two rooms, and now my portion of the mortgage (including HOA) is just $290/month since they are each paying me $900/month. You can't really live anywhere you're happy with for less than $900/person in downtown Chicago.

I'm 25 years old, and in 2-3 years I plan to keep the condo as a rental because even right now I could likely rent the condo for $2800. Anything you buy, my suggestion would be to make sure you always have renting it as an exit strategy, and hopefully for at least a few hundred dollars above your monthly payment. I would also suggest having 1-2 extra bedrooms and getting roommates while you're young in order to lower your expenses and expedite your savings for the next move. 

I closed on my first purchase (primary residence, 3 bedroom and renting the other 2 rooms to roommates) one month ago. 5% down on a 30 year conventional with an 805 credit score, though my lender gave me a 2% grant at closing so I really only put down 3%. My initial interest rate was also 4.125%, though they offered to give me another $1350 at closing if I bumped it to 4.25%, which I took. 

Since I ended up putting so little down on my primary and have savings left over, last week I was pre-approved for 25% down on a duplex out of state at 4.75%. 

@David Krulac @Patrick M. it seems to be a consensus to shoot for tenant-paid utilities, and I can clearly see why. On any given hot summer day or cold winter night, landlords probably lose sleep over the thought of how wasteful their tenants are with the thermostat. With all the other things that can go wrong, I feel like owner-paid utilities are an unnecessary added stress. 

@Everett Fujii @Deanna McCormick thank you for your inputs. I had a hunch that owner-paid utilities could be a sign of lower class neighborhoods.

This might be common sense, but is it impossible to still instruct tenants to set up utilities in their own name on an owner-paid property, or will the utility company only put them in the owner's name? I guess I just don't see what makes one property owner paid vs. what makes another property tenant-paid, or when that decision gets made.  

Hey Everyone, 

I have pre-approval letters on a duplex and a triplex, and on the triplex, the owner pays all the utilities. The triplex is listed for $95,000 and brings in $2500/,month in rent, while the duplex is listed at $89,000 and brings in $1300/month in rent. The triplex has separate electric meters. The current owner of the triplex says that insurance, property taxes and utilities come out to $600/month.

Do investors look for one over the other (tenant-paid vs owner-paid), or if a property is owner-paid, do they tend to fluff up the rents and advertise the units as "utilities included," which in my experience simplifies things for renters and makes them feel like they're getting a deal? Is there anything to be concerned about when it comes to owner-paid properties? Is it common for tenants to take advantage of this and crank their a/c all day/leave lights on/etc? 

Thank you, 

- Derek 

@Jeff Schechter that is a very interesting perspective, and one that makes me feel better about the idea of selling. My $25k for a down payment could bring me $300 in monthly cash flow for decades, and stocks would never do that. Thank you for the input.