All Forum Posts by: Evan Heckert

Thanks for the reply, Dave. Yes, no property tax for first two years, which will offset most if not all of the PMI.

I hope to get some quotes from builders over next few days. If I can't do something for closer to $400, this may just not be the right opportunity for us.

I appreciate all the input from everyone, and the kindness to my ignorance. 

Quote from @Dave Faris:

It might produce enough income as a short term rental or a rent by the room property.  But my recommendation is to buy a $250k duplex and start building your future.

Best of luck!

I'm tracking with your logic, but I've kept my eye out for duplexes for a long time, and they pretty much never come up in the cedar rapids area, let alone for $250k. 

But then for building, all the duplexes in the surrounding areas with at least 3 bed 2 bath are showing $300-$350k per unit on the county assessor site. I have yet to track down a floor plan to get shop builders on for less than $550k. So when you throw out $250k for a duplex, that sounds impossible.

But I also recognize that I'm a newbie with hardly a clue, so I don't want to dismiss your advice, I just want to know what I'm missing? 

I had hoped to use higher rent to act as a filter for tenants, so let's say $1500+ as a target. Let's use my current place as an example: I'm renting for $1700, neighbors are at $1800. It's 3 bed, 3 bath, 2300 sq total ranch style, 4 units side by side, 2 car garage, 2015 construction.

Can a build of that level of duplex be done for at or under market value? Is $550k a real baseline for a 3+3 bed duplex build? Without a floorplan to shop, how would I find out? Just go to a builder and say "Hey, I've got a properly zoned for a duplex. What would $400k get me?"

Thank you all for your patient and thoughtful replies.

Located in Robins, a suburb of Cedar Rapids.

Thanks for all the replies so far!

Any key info/context I left out that would encourage feedback? Grateful to anyone who'd share their $0.02.

Just learning about the 1% rule. So does that mean on a $600k duplex, each side should be able to rent for $3k or it's not worth it? That seems a bit high, but perhaps that's the problem, I should scale down the spec that I'm building so it's not $600k.

Wanted to get a sanity check here before we get too much momentum. We were going to wait for the market to chill out and save for downpayment, but this opportunity came up and we're inclined to seize it.

We've always rented, but at 37 with a growing family, I'd like to start building equity and eventually cashflow. Here's the prospect:

0.34 acre lot in eastern Iowa, zoned for R3 Medium Density 2-Family, 2 min from interstate, $85k

Builder is proposing ranch-style duplex, with each side having 5 bed 3 bath, 1400-1500sq ft main floor, oversized 2-car attached garage. Est. build cost of ~500-520k. All in we'd certainly be maxing out the FHA limit for duplexes at $604,400.

Builder suggested market value should be $660k when done, and rent should easily be $2300/mo for each side (though we'd live in half for at least 2 years to avoid capital gains tax). 

To finance, looking at the FHA One-Time Close Construction-to-Permanent Loan to still put the 3.5% down ($21,200) which is still a stretch for us, but doable. Then we'd work our tails off to rebuild a financial buffer to handle vacancy, etc.

I'm hoping the collective wisdom here can help to steer me in the wisest direction. 

A few questions/concerns:

1. How do I gauge whether the builder's suggestion of 5bd 3bath is the right move?

2. With no comparable built duplexes on the market anywhere close, how do I gauge the market value and whether the proposed price of the build is reasonable?

3. Is this more cashflow stupid than to keep renting for $1700/mo? With credit scores around 800, roughly $100k gross household income, and only a small student loan for debt, we should meet debt:income and get the best rate available right now. That's 5.75% at our bank, yielding $3400/mo not including insurance, PMI, or property tax (which is waived for first two years). My biggest fear is applying and finding out PMI is going to be 1% or more, meaning $500/mo just evaporates and we're spending at least what we spend now and only IF we have a renter at all times.

4. Any guess as to what the closing costs are that we should budget for?

5. If the cashflow scenario is too risky, are we just stuck renting for a few more years? 

I sincerely appreciate the time, and all the content here. I've been lurking and searching since we found out about the deal, and have been bingeing the podcast. I'm very open to any advice you're willing to offer.