All Forum Posts by: Luke G.

Spoke with a duplex owner in the area and also a appraiser. Seems like 275k-300k is more inline with market value. So...I passed on the deal.

Really appreciate all the advice you guys had!

Luka-

I hear you. I have the same reservations you do. It's like .71% instead of 1%.

Edward-

It's 880 square feet a side. Appreciate knowing what yours are renting for, helps!

David-

I don't know that I absolutely have to live in the area. I do plan to live there for five years, maybe longer. I'll still hold the property after that.

Anyone think I should factor in how well it short term rents?

Totally appreciate that opinion. Not willing to move out to Dickson and commute 45 minutes each way. If anyone can suggest a property that's a.) not in a high crime area b.) in Davidson county, I'm open to suggestions.

Looking at an east Nashville duplex. Put in a few bids, but the seller says 340k is the lowest they will go.

Both units have two bedrooms and one bath for a total of 4 bedrooms two baths. It's in decent shape, but not a rehab. Near Shelby Bottoms and Downtown. Rentometer says 1166 for 2 bdrms in the area, not sure how much I should lean on that number. I'll be doing an FHA loan (3.5 down).

The property will negatively cash flow at that 340k (with the FHA loan), BUT...I am going to owner occupy. And, they provided good documentation on the short term leasing they have been doing. Year round average ~1600/month a side. And I would probably short term rent the place. I want to move out in 5-6 years once I have children. At that time, I would like to rent instead of short term rentals. Wondering if by that time rents would increase enough to make it positive cash flow. Is this too speculative?

Again living at the location, so please factor in that Nashville has a strong sellers market and I do not want to live in a bad area or really far from town.

Thoughts?

Hey Leo, Jelani, Brandon-

Appreciate you guys responding, makes me feel like I'm not the only one experiencing difficulty in purchasing a multi-family during this market. 

I think it's a great strategy to shift focus to areas a little further out, but because I am looking to own/occupy doesn't make sense this go around.

Hey all,

Wanted to run some thoughts by you:

Been looking in Nashville for a duplex to owner occupy for way way too long. Trying to figure out what is wrong/why I haven’t been able to get a hold of a place that follows the 40% Capital Expenditure rule or the 1% rent/cost rule.

Here’s what I’ve come up with:

Nashville sometime since the beginning of the recovery from the housing crash has become a very different city. Nashville has moved from a 16.99 Price-to-Rent ratio to a 23.18 ratio, which is high for a Metropolitan Service Area of 1.5 million. I’ve found that if you want a place in the greater Nashville area, the best deal you can find is .75% rent/cost. You can find places that are outside of the city or in areas of town I wouldn’t feel safe in, but that doesn’t work well for an owner occupied space.

To further complicate the issue, because Nashville has had such a run up in prices, multifamily sellers are trying to get a premium for their properties. The average sales price for a multifamily has been 10% less than the listing price, with some properties selling for 60% less than listing. And that’s just the multi-families that sell. Almost half, 44% of multifamily houses listed are not selling because the listing price is so far out of market.

Meanwhile my agent is dealing primarily with single family where it’s very common for homes to have multiple offers and sell for 10-20k over asking and encourages me to offer close to listing, which until now has caused me to rule out significantly overpriced multifamily listings.

I’ve thought about giving up and renting for a while until prices come back down, but recently have read a bit more on real estate cycles and am convinced that Nashville is in an expansion period (which is traditionally a great time to buy), rather than a hyper supply period and that if the Hoyt theory holds true, it could be another 10-15 years before prices come back down. One caveat, Nashville is really dependent on healthcare, with many ancillary health services headquartered here, so moves toward nationalized healthcare could affect the local economy in significant ways.

For now, I’m going to look for places that are .75% properties/ gross rent multiplier of 10-11/marginally positive cash flows. I’ve been holding off on having my agent put in offers that are significantly less than listing, but I think I am going to start making offers for what places are worth (aka what I think a property could reasonably sell for) regardless of crazy listing prices.

Thoughts?

"If the current owner is the one who only paid $290k for it back 9 years ago, then he is probably not motivated enough to sell. It cash flows nicely at that price." Great comment, I suspect that's exactly what's going on.

"Just who is building $3M homes around the corner?" The neighborhood has finally turned around enough that developers are taking advantage of the hill in the neighborhood that has a spectacular view of the city.

Colleen F.-Thank you, such practical advice, really gets back to my original question. Much appreciated.

Brent Coombs-Thanks for the search on the 50% rule! Seems like many of the comments from various threads deemed the rule too conservative, but certainly helpful to use the rule as another way to evaluate deals. The property is a quad, and my rent and negative cash flows would bring the total to 1162. Which is more than I would prefer, but certainly lower than many friends pay for a one bedroom in town.

Steve Chaisson-I'd be curious, if you would PM the address to the 276k quad. I have been watching various real estate search (realtracs, realtor.com, etc) sites daily and I never saw that property list. That would be a pretty amazing deal for Shelby Village.

Everyone- The property is 3327 Park Ave. in Sylvan Heights. The seller refuses to take a cent less than 545k and did not counter my offer. Obviously, the property is worth less than that, but how much less is still a question in my mind. Regardless, I cannot get a loan for higher than 417k.

Brent-

You and I both missed something. I missed that he said "of rents"; I used the mortgage instead (which isn't correct). And you're double counting insurance and taxes. You're counting it once in the 1300 of other expenses and once in the mortgage of 2750. To fix the error use the mortgage number of 2300 instead of 2750. The 2300 is the mortgage with pmi, but without taxes or insurance. Using 40% of rents and the 2300 mortgage, I get a loss of 362. Not great, but better than your -850 number.

But...I'm not sure where the 40-50% rule Shepard cited comes from. Would love to have a link to an article.

So just want to look at it a different way for a second, rents should be 3225 less 2750 for the mortgage payment (p+i, pmi, taxes, ins.) leaves me with 445 for capex and other expenses. I've always seen the figure that 10% for capex is enough.

Again don't want to take on water, but not needing super high cash flows. I'm fine with break even cash flows in conjunction with good property appreciation possibility.

Guys thanks a ton for taking the time to respond and discuss. This post has got more feedback than I expected, which is always much appreciated!

Tom-Wanted to mention that on the mortgage I listed, I should have called it the mortgage payment. The number 2750 includes taxes, insurance, pmi, principle and interest. If I take principle, interest and pmi and multiply that by your 40% number I get 3215. Which is a little less that rents.

Everyone-I wanted to obscure some of the details as to not advertise the property, the property is actually a quad not a duplex. Same rents and price. Also, the neighborhood has increased 68% in value since 2006. It is heavily gentrifying with 3M homes being built around the corner. Huge appreciation potential, although some appreciation has been realized.

Also, maybe I should backup a little. This is my first purchase. Looking to buy a place to be an owner occupier. I am 34 and just finishing paying my way out of college debt from a masters degree. So I am cash poor, but have a decent white collar job. I'm looking for a place that is A) livable aka not crime ridden and B) within 35 minutes to work in Cool Springs.

At a GRM of 10.77 with the 417k price, according to Investing in Duplexes, Triplexes, and Quads, "this is a good range to shoot for if the area is okay, the property is in decent shape and the tenants are not too bad. If you have all three don't delay, it won't last long. You should have decent to good cash flow with 10 to 15 percent down. Decent cash flow, decent appreciation." This seems like a good buy, I know it doesn't have a GRM of 6, but it also has huge appreciation potential.

JT Spangler-Maybe you can give some of the folks from outside of the Nashville area the climate here. I'd love to buy a property that is 1%, in the city, and in a safe location. But that just doesn't exist. Been looking for 1.5 years. I know that exists in other cities. Just not in Nashville right now.

Really welcome more debate, really appreciate you shooting holes in my deal because that helps a fellow investor not make a big mistake! But I ask that you keep in mind the climate of some cities in the US aka super hot seller markets and also that this is neither an appreciation play or cash flow play, it is a merger of the two.