All Forum Posts by: Nick Howard

Looking for opinions.  My family an I are looking to move out of our Duplex after 5yrs and buy what we hope to be our forever home.

I had assumed if I can find a property manager when I move out, I'd keep the duplex.  Let it bring in a small trickle of cash, but mostly for the equity and appreciation, and cash flow during retirement.

However I had a thought the other day and began doing some math to test it out. The question was, what if I sold, used the sale to help put more money down on the primary residence, drop the mortgage and invest the difference in the market (401k, IRA, Traditional Brokerage Account).

Duplex Numbers: Refi in 2021, 240k. Zillow says 270k, but I know that shouldn't be trusted much. Remaining loan balance 182k. 10/1 ARM 2.75%->7.75% in year 13/14, (max step 1.5%).

Scenario A, renting the Duplex.

Couple of assumption, 3% appreciation, 10% rent = Maintenance, 10% rent = Cap Ex, 10% rent = vacancy, and 13% avg Property management fees.

I think I could rent for $2300, and 3% increase each year.  In 35yrs, duplex could be valued at 700k. and would be cash flowing 25k/yr after the mortgage is paid off.

The primary residence we're looking for is in the 450-500k range.  Using 480k, mortgage was $2700 with 5% down.  Same appreciation assumptions, that house could be worth $1,311k in 35yrs.

Summary: $2M in Real Estate Equity, and Cash Flowing 25k/yr (which using a 4% rule is equivalent to 622k in equivalent stock market "value")

Scenario B, selling the Duplex, invest the difference

If I sold the duplex, maybe for 255k, I'd get 71k gross, and assuming 8% transaction cost, 66k net.  Add that to the 5% I was already ready to put down = ~19% down on the primary with a mortgage of $2,300 (delta $400).

That $400 invested at 8%/yr is 908k in 35yrs, which would bring in 36k/yr using the 4% rule.

Summary: 1.3M in Real Estate Equity, and an investment value of $908k.  Using the 4% rule that would provide $36k/yr.

I'm not sure which Scenario makes more sense... Scenario A has more RE value, and 25k during retirement with rental cash flow.  Could also sell the duplex then for 700k-8% transaction, and that would be worth 25k using the 4% rule.  But Scenario B has more income during retirement via the 4% rule.

Opinions appreciated.

if you see major assumption misses let me know, but really just trying to think through the idea, the math was to prove it was a feasible comparison.

Hello BP,

Long time lurker, looking for my first property, aiming for a live in multifamily. We’ll live in for the first few years, hopefully having $1,000 per month from having no rent.

I’m a bit long winded, so I apologize ahead of time.

My wife and I are going on a second visit to a property here in a small village on the border of Cincinnati.  AreaVibes lists this village as a 77 Livability (Extremely Liveable) and a A- on Crime.  Last week we saw the one of the four units (supposedly the “worst unit” which only appears outdated). The other 3 have supposedly been remodeled (the one that hasn’t has an 8 year tenant in it). What I really like is the owner has just installed new water heaters, new AC, new windows, new concrete parking lot adding 7 offstreet parking (in addition to the attached 2x 2 car garages), and “newer” breaker box and furnaces. I feel like these improvements could really help my wife and I create a strong foundation, hopefully limiting the number of early Cap Ex, lets us build some reserves.

Unit 1 (3:2): $900

Unit 2 (2:2): $650

Unit 3 (2:2): $550 (assuming the unremodeled one)

Unit 4 (Eff): $325

Laundry: $80

Gross Inc: $2,505

10% Vacancy: $250.50

10% Repairs: $250.50

10% Cap Ex: $250.50

10% Property Management: $250.50

Taxes: $304.58 ($3,655 LY)

Insurance: $100 (no quote yet)

Expenses: $1,406.58

NOI: $1,098.42

I’m also currently assuming I can move the cost of water from the owner to the tenants via some simple sqft ratio or even one of these remote hookup things (haven’t researched that too much yet). (Tenants pay electric and gas already)

Will likely need some landscaping, and snow removal? Unsure if that’s built into some property management. Haven’t looked into Property Management yet since we’ll be living in and getting our feet wet the first couple years.

So here's my dilemma. Asking price is $189.9k at asking, it gets $46/door, CoC 10%. My original goals after all the information I've consumed is to aim for $100-$200 per door. To get $100/door, my MAO is 33% off, $146k. I don't think that's in the realm of possibilities. 10% seems more realistic but still maybe not (since I have no experience in buying multis in Cincinnati in 2017). 10% off, MAO is $170k, units cash flow $69/door (17% CoC).

The last scenario is rent increases and value-adds. There is a neighbor I've seen list a 1:1 (900sqft) for $650, indicating my 2:2 may have room for improvement, let's say $665 for both (would need to remodel the older unit, +$15 & +$115). There are 8 efficiencies across the street renting for $450. Not sure if they're bigger or nicer than the 4th unit in this property, but let's say I can get the efficiency to $375 (+$50). I could also try and rent the garages. I think a modest price would be $25/2car/mo (+$50). So the NOI is now (+$15+$115+$50+$50=) $2,735. That brings the $/door to $104, CoC 25%, with the same MAO of $170k. Again, not sure if this is realistic, or if I'm trying to make an okay deal into a great deal by messing with numbers.

Tags: Cincinnati, Multifamily, Quad, First Deal, Deal Analysis

not meaning to hijack the post, but I also just found BP, and currently rent in the Mason area. Will look for the next REIA meeting, I've seen that mentioned a few times.

All of this new information is overwhelming and I'm just trying to absorb as much as I can.

I don't have much to invest with so i want to make sure the first thing I buy will be a winner.

mod, please do not post, just realized there was a billion more pages to read (noob move)