All Forum Posts by: Mark S.

@Mike H. Yes, thank you! I just want to get in the game. This may sound dumb, but if my profits are slightly less, but the expected maintenance and extremely low vacancy risk are handled, I'm okay with not hitting a grand slam on my first deal. It gets me experience; it gets me in the game. Some basically said, or implied, that this purchase may very well get me out of the game, but you seem to feel differently and that's encouraging.

I'll continue to look, but I guess I'm going to have to think long and hard about this one.

@Mike H. I forgot to address the taxes and insurance. The taxes are what has actually been paid on these from other owners last year, so that's correct. The insurance figure was obtained from an actual quote I got about 8 months ago on one of these actual duplexes. Both figures are accurate. It's Kentucky, bubba! :-)

@Mike H. Yes, you're absolutely correct about the different forms of returns real estate provides. The reason I didn't include these, right or wrong, is all the talk on these forums about appreciation being speculation, etc., and basically to only buy and hold for Cashflow, that the rest is gravy. Your assumptions of the deal that you stated are correct. I actually talked to a local lender that would do 85% LTV, however, it'd be a 5/1 ARM, not fixed.

@Stephen Masek Buying with cash is great if you have it. I think most of us get financing because we have to.

@Karen M. I'm glad to see other rookie real estate investors on here. I'm very well versed in the stock market and have a size able portfolio for my age already. I'm not trying to brag, but to diversify into other types of investing, such as real estate investing (outside of the stock market).

To everyone else, thank you for your advice. As much as it kills me, I will not move forward with this deal right now. I actually saw two wholesalers from my local REIA post deals online right now for properties they have under contract for SIGNIFICANTLY less. They both need a lot of work, but maybe I've been looking in the wrong places.

Any poker players out there? Ever been at the table and just get restless after you go card-dead for a while, so you start getting in pots you shouldn't just to get action and then lose your whole stack in a hand you had no business in in the first place? That's kind of how I feel trying to rush into this deal. I learned the hard way to stop doing that at the poker table: discipline. That lesson was probably a whole lot cheaper than a misstep on a ~$200K duplex like this. I'll keep looking and analyzing, and if it's okay, present more numbers on other opportunities.

I'm getting my *** kicked so far.... Keep it comin'!

@Scott Isley Thanks! It's definitely a tough one - for me, at least. It took me longer than I care to admit to come up with the numbers. Big kudos to whomever posted the spreadsheet that I downloaded from the site to use in the analysis - REIPropertyAnalyzer.

@Michael Smith Yes, you're right; I get this. I guess it's more the brand new that I'm in love with versus the actual building. I could find a ****** duplex around here with better numbers, but why, just because the numbers are better (at least for the time being, until I get killed on repairs and deferred maintenance)?

@David J. Yes, I would be managing it myself. I also own REITs, so nothing new there. Not to say that it's "right," but if these really weren't that profitable, then why would a few investors buy and hold several of them adjacent to each other? If they were losing money, would they really keep buying?

@Jean Bolger I guess I should have been more clear. I'm brand new to real estate and real estate investing. I love the idea of owning a quality piece of property that will likely command quality tenants and above-average rental income for the area. Yes, this may sound like a wish-list, but I know the area and I know what these are renting for. To me, the last thing I want to deal with - especially not being handy AT ALL - are repairs, maintenance issues, or being a slumlord. I feel like this property gives me one of the best opportunities to get involved in this business and still turn a reasonably acceptable profit.

I guess this is tough love so far, but maybe it's what I need. I just don't see the value in buying a less expensive property that I will probably have to sink money into either now or in the near future. I'd rather pay more upfront, get favorable lending terms, have less immediate maintenance to worry about, and get on with the show. The rents from any other properties in this area certainly won't be any higher.

Sorry for such a long post, but I'm semi-obsessed with this potential deal. I've been wanting to buy one of these brand new, all-brick duplexes for some time now. I tried to further break it down. All advice and guidance is greatly appreciated. Thanks in advance, everyone!

2 bedroom / 2 bathroom, 1,320 sq ft each (2,640 total), new, all-brick, side-by-side duplexes.

THE NUMBERS - TWO SCENARIOS
SCENARIO 1 - Pay Asking Price, Collect Lowest Rent Likely
Purchase Price: $190,000
Down payment @ 20%: $38,000 down
Loan Amount: $152,000, 30 years at 6.00% (estimating here)
PI: $911.32/month
Gross Monthly Rent: $1,600/month (conservative estimate)
Yes, I realize according to the 50% rule, I'm already cashflow negative.

Expenses
Taxes: $2,119/year = $176.58/month
Insurance: $700/year = $58.33/month
Vacancy: 8.74% (according to www.bestplaces.net, as of June, 2012) = $139.84/month - I think this is a bit high, as these units seem to have very little trouble getting occupied.
Groundskeeping: $500 = $41.66/month
Advertising (Craigslist, Internet, For Rent signs): $100 = $8.33/month
Maintenance/Miscellaneous: $1,000 = $83.33/month

Total Annual Expenses (including vacancy): $6,097.48 = $508.09/month
Net Operating Income: $13,102.52/year = $1,091.87/month
Less Annual Debt Service: -$10,936/year = -$911.32/month
Cashflow Before Taxes: $2,166.52/year = $180.55/month
Yes, below the ideal $100-$200/month per door.
Cap Rate: 6.90%
Cash-on-Cash Return: 5.70%
Taxable Net Income (after adding back $1,816 principal payments and amortizing over 27.5 years for $6,909): -$2,926. So, cash flow is not taxable.

SCENARIO 2 - Pay Slightly Below Ask, Collect More Likely Rent Purchase Price: $185,000 (instead of $190,000).
Down payment @ 20%: $37,000
Loan Amount: $148,000, 30 years at 6.00% (estimating here)
PI: $887.33/month
Gross Monthly Rent: $1,700/month (more realistic estimate)
According to the 50% rule, I'm still slightly in the red here.

Expenses
Taxes: $2,119/year = $176.58/month
Insurance: $700/year = $58.33/month
Vacancy: 8.74% (according to www.bestplaces.net, as of June, 2012) = $148.58/month - I think this is a bit high, as these units seem to have very little trouble getting occupied.
Groundskeeping: $500 = $41.66/month
Advertising (Craigslist, Internet, For Rent signs): $100 = $8.33/month
Maintenance/Miscellaneous: $1,000 = $83.33/month

Total Annual Expenses (including vacancy loss): $6,202.00 = $516.83/month
Net Operating Income: $14,199/year = $1,183.25/month
Less Annual Debt Service: $10,647.96/year = $887.33/month
Cashflow Before Taxes: $3,551.04/year = $295.91month
Cap Rate: 7.67%
Cash-On-Cash Return: 9.60%
Taxable net Income (after adding back $1,768 principal payments and amortizing over 27.5 years at $6,727) = -$1,409. So, cashflow is not taxable.

These numbers are probably far less than impressive, but remember that the property is brand new, my estimates are very conservative, and I'm essentially buying at retail price. I'm willing to sacrifice a little return in exchange for a (at least in the beginning) "lower-maintenance" property. I figure this is a good way to get my feet wet while I gain experience.

Update didn't show all the figures....

For SCENARIO 2, I accidentally still had the $1,600/month gross rent figure in there. When I updated it to $1,700/month, several figures obviously changed.

Scenario 2 figures should be:
Net Operating Income: $14,199 = $1,183.25/month
Cashflow Before Taxes: $3,551 = $295.91/month
Taxable Net Loss: -$1,409 (after adding back $1,768 principal payments and amortizing over 27.5 years at $6,727).
Cap Rate: 7.67%
Cash-on-Cash Return: 9.60%

I LIKE THESE NUMBERS A LOT BETTER!!