scrap said:

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bcasey03 said:

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Things definitely seem rough for the first time home buyer these days.

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Why do you say this? Maybe because home prices have priced many out of buying?

If this is so for many first time home buyers then all they need to do is refocus there search. In most markets, a first home buyer that is willing to pay a mortgage on a 150k home can then make a payment on a 250k duplex. The additional income from the other unit will supplement enough to bring the monthly mortgage cost to below rental rates while building equity in a property. Also another benefit would be if financial troubles should befall them as in a loss of a job simply move out of the duplex, rent the other side and have a $500 positive each month.

Just got to be willing to adjust to the times.

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So the solution to struggling to afford entry level housing because of debt is - buying nearly twice as much house as you should?

Interesting read, will continue to follow. I have a home in Dallas I've indicated to my realtor I may sell (I travel full time and have a lake place I can go to). When I'm done in a year or two with this I doubt I go back to it.

Anyways, realtor I trust and knew I was considering sale called me 2 weeks ago with similar message. Only issue is I have probably $10k in deferred maintenance on house with a foundation issue and such. Not sure what I'd lose selling as is and have zero time to remedy all that. Would still show well. Ugh...I planned on keeping it for passive income since it's paid off.

TXAGFAN said:

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Interesting read, will continue to follow. I have a home in Dallas I've indicated to my realtor I may sell (I travel full time and have a lake place I can go to). When I'm done in a year or two with this I doubt I go back to it.

Anyways, realtor I trust and knew I was considering sale called me 2 weeks ago with similar message. Only issue is I have probably $10k in deferred maintenance on house with a foundation issue and such. Not sure what I'd lose selling as is and have zero time to remedy all that. Would still show well. Ugh...I planned on keeping it for passive income since it's paid off.

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Not to sound snarky, but I don't think repairing those deferred maintenance items would take as long as you think they would if you don't plan on fixing them yourself. All it might take is a call to a contractor and foundation company.

Surely you jest, but what that's not what he's saying at all. He's saying that by having a duplex a large portion of debt service would be paid by the tenant in the other half thus reducing the buyers debt service below what he would have in a $150k sfr.

It's one of the oldes games in the book and as my greatest teacher taught me "when I was a kid I'd buy two bikes, one to rode and one to rent".

Hahah...me no joke, I'm looking for a 70's-90's duplex, near the SA airport or med center that needs a complete overhaul.

Our plan will be to make 1/2 like new, move into it, make the other half like new, rent it out and then find the next one. We're DINKS, with two small businesses and trying to scale both.

Truthfully though, you're right. We don't WANT to do that but we're on a mission to $20k/ month and I need some experience before I can make my jump to passive apartments and ultimately lead investor in my own sydications.

I'm also a glutton for punishment, as I cook dinner in my demo'ed kitchen. We ordered cabinets today, two weeks until delivery and we still have a bit of framing, drywall, trim and paint to do before then.

We also have debt that I want GONE! Selling this beautiful remodel will net us enough cash to pay it off and have money for the next one, weither it be a duplex-4plex or maybe the 80% offer I'm gonna make for this SFR I looked at the other day that I can get with seller carry.

Like I said, we're crazy and we know it but we're willing to put up with this for a while to help us meet our goals. Then it's all scuba/fishing from Belieze or hiking/skiing in Vail/Breck area.

#focus2020 #alohachristmas

SteveBott said:

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Ha scrap will reply to every thread the solution is buying a duplex. He has an investment strategy based on these. Who the hell wants to shell out thousands to have a neighbor living on the other side of a single wall? Deal with communal parking? No thanks.

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Yes Steve YOU ARE CORRECT! There are two reasons to buy duplexes here. One to live in as owner occupied and the other to start building REAL wealth that has a GREAT potential to PROVIDE FINANCIAL FREEDOM in short order!! BTW, I don't live in a duplex, but if I was just starting out, most definitely would and later I would live anywhere I want in any type of housing I desired.

Lets start with this first! A young couple or single professional contemplating buying a home. Yes this thread started out talking about a first time home buyer that is going to be stressed financially buying a home especially in light of the recent run up in prices. Lets start here shall we. This may not apply to you Steve, who has all the money you need to buy the mansion you want but this will apply to a lot of others so bear with me, I'll get to what may apply to you on the next example, but I am sure you already know what I am about to say so this is for all the others.

Buy a Single Family Home (SFH) or Duplex.

Example SFH 150k vs 250k Duplex (I give this example to make my point, but we could make it a 200k duplex, my point would even be better. 3000 taxes for SFH 4000 for Duplex, 1200 property insurance for both, Ok with that?

30yr mortgage @ 4.5%, 3% down for SFH, 5%for owner occupied duplex keeps down payments the same $7500
SFH PITI $1087
Duplex PITI $1637

Good so far, Steve your in the loan business, everything looks good?

Now for the first home time buyer the duplex is better and lower risk, why?
Side A owner lives in Side B rents for $900 (low projection on 250k duplex but I don't want to pad my argument)

Duplex PITI $1631 - 900 rent income = $731 out of pocket vs $1087 savings of $356 per month!! But you say, not so fast Scrap what about vacancies and maintenance......yes indeed we must account. Take out 5% each and less $90 so now net each month is +$266.

BUT WE AREN"T DONE. Lets look at risk!!!!! Dang it, we buy at the top of the market. Hey Steve where is the market today in you opinion, closer to the top or bottom. Recession hits, job cuts abound, owner loses job, has to relocate to find another job, or is stressed out being unemployed and puts his house up for sell for a loss.

Again, NOT SO FAST with the duplex. Keep smiling, take that job to another city and DON'T THINK ABOUT SELLING THE DUPLEX......why? Because he is going to rent out the other side for $900 and now receives $1800 monthly to pay $1637, easy peasy! Wait hold up Scrap, how in the hell is he going to get $900 rent in a recession, people losing their jobs!!!! No problem, your rent pool went up, more people rent and they downsize their housing cost to $1000 or below. HOW DO I KNOW! I started buying DUPLEXES in 2002, I now have 17 units and manage another 6 for my KIDS! I have never lowered rents, even in the 2008-2010 housing downturn my rents went up!

You see people working at MacDonalds don't know three things: 1. Don't experience layoffs, 2. Don't know a Stock Market exist, and 3. Doesn't know a housing crisis is upon them, because THEY RENT and don't own, they make great tenants!!!!

Yeah Steve my answer most of the time is DUPLEXES.

Now lets get to YOU and everyone else who would like to be financially independent some day, shall we.

I tell you what I'm tired of typing let me let Coach Carson tell you.

https://www.coachcarson.com/how-many-rental-properties-to-retire/


Good luck Ags!

BTW Ags, A year ago my daughter bought a duplex in Bryan. $130k with existing tenants paying $650 rent. She did slight upgrades (bedroom carpet out, hard tile in), and increased rents to $750 each side, both sides rented, no vacancy on one side the other side vacant for 1 month. She is cash flowing positive.......easy peasy!

Lastly Ags, buy in areas that population is increasing, that is just about anywhere in Texas. However, I really like the HWY 35 corridor from San Antonio all the way to Dallas-Ft. Worth. Better value in Bryan than College Station. Luxury apartments have over built so duplex market can be a challenge, but if you focus on the Graduate Student or Vet Student they tend to not want to be in the Apt setting. As always.......Good Luck.

Diggity said:

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Nice rant. How does the couple struggling to qualify for a $1000 PITI afford the $1600?

Will a bank give you credit for rental income if they aren't even there yet?

What about extended vacancy?

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All good questions. Each person has to know what they are qualified for. The duplex concept still applies. I used a duplex costing more but you can find ones that are in the same price point of a SFH you might be considering.

For example, as I mentioned earlier, my daughter just bought in August 2017 a 130k duplex in bryan. So instead of buying a 130k home, buy the duplex. My example was extreme the other way in that I was trying to show how advantageous duplex buying can be. The closer you get to the price point you can afford still favors the duplex.

Usually starting out, most banks will not give you rental income credit until you have 2 years of experience as a landlord, but exceptions happen all the time. If you don't have lease documents then you won't receive credit for projected rents. That is another good reason to start out as an owner occupied property which will allow you time to get the two years of rental experience.

What about extended vacancy? Loaded and ambiguous question. What do you consider extended. For me anything over 1 month is extended. For you, I don't know. I own/mange 23 rental units. Rarely do I go more than a month empty. Most of the time less than 2 weeks and many cases 1 day turnover. Unless you plan on major capital improvements, normal day to day turnover is less than a month. I have been managing since 2002 and I don't think I have ever had more than 2 months vacant and that may have occurred two times in 15 years if that.

Diggity said:

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My point is that you're using a couple that has limited means to buy a starter home and proposing they spend above that (with the rental income offsetting a good portion) .

In a perfect world, it makes a ton of sense, but anyone who has had investment properties knows that this isn't always the case. The "starter home" couple may not have reserves to ride out extended vacancy, which can happen, so they might be taking on more risk than is advisable.

I get the idea of house hacking, but you seem to gloss over the potential risks.

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Diggity, I know your in real estate and I know you knew the answers to the questions you posed to me, maybe to see if I knew them, I don't know.

But I made your point INVALID with my last answer to your post.

If a couple is able to buy a SFH my point is to instead buy a duplex. Use the same price point they were using to buy the SFH and buy the duplex. Your point now is invalid.

My first example was just to demonstrate that even a more costly duplex can work out better than a lower price SFH. But they are not locked into paying more for the duplex.

HERE ISI THE DOWNSIDE OF BUYING A DUPLEX!

Lets keep this real shall we. Same price for both properties.

Generally speaking..

1. A SFH will be nicer than a duplex of same cost.
2. The neighborhood is usually nicer in a SFH community vs duplex.
3. Living quarters and space between neighbors better in a SFH.

That is about it!!!! All those points are considerations of a owner occupant not investor.
If those 3 points are deal breakers for a young person or couple looking to buy a property to live in, so be it!

I get it, but again lets be real. In todays world it is GETTING HARDER to buy a home. If your willing to sacrifice those three points above to put yourself in a better position to buy the house of your dreams, to live the life that comes with financial freedom then duplex investing might be for you. AND your financial risk is ABSOLUTELY less buying a duplex, especially if your price point is the same. We can argue till the cows come home at what price point paying more for duplex becomes more risky. This is for illustration and consideration.

I like duplexes, but other real estate types work great too. When buying their first home, most people don't consider multi-family and I am just highlight the time is now to consider that type and duplex investing is about the easiest and most conservative choice in the multi-family environment.

Diggity said:

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changing your assumptions to fit your argument does not make my point invalid.

I don't know your market, but there are no duplexes that our fictional buyers (or their renters) will want to live in for under $200K in the Houston area. However, there are hundreds of options for newer single family homes in that price range.

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Fairly ignorant statement no. Are all the duplexes in Houston empty. No fictional buyers (or their renters) will want to live in......really. You my friend represent a whole lot of people.....good for you!!!!

Your right I don't know the Houston market. But i do know the Dallas, Ft Worth, Austin, Georgetown, Round Rock, Taylor and Bryan markets and their are lots of people who are owner occupants in those markets doing quite well. There are even more that are investors doing very well. I have help mentor a few.

Somehow I doubt that their are no owners or renters in the Houston market willing or wanting to live in a 200k or less duplex. Are they really all empty.....such a waste.

SteveBott said:

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LIke I said scrap you are the hammer and duplexs are your nails.


Bottom line lots of folks buy homes to get away from apartment living and duplexs do not do that.

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Like I said scrap you are the hammer and duplexs are your nails.

No truer statement said, Steve.

However, your second leaves much to ponder. I would venture to guess more people leaving apartments are still going to be renters, many looking for a small home or duplex to rent for the following reasons.

1. Most duplexes have private yards.....not so much for apts.
2. Most duplexes allow you to park if not in a garage, just feet from your front door.
3. All of mine and most duplexes out their don't require you to climb several levels of stairs to get to your front door.
4. Worst case a duplex makes you share one common wall, An apartment possibly four. Its not just the sharing of a wall, but walk out your door and you might have to navigate traffic from many, many, many tenants. Not so much with a duplex.

Many of my renters have come from apartments!

In the Austin area they are building new apartment complexes to combat the affordable housing issue. But building new, their asking rents actually are higher than my duplex rents.

Many of my tenants, coming from apartment living, cite the above reasons why a DUPLEX is not like a apartment and in fact more like a single family house.

Cheers! BTW do you have any good duplex leads

Insert Homer Simpson slowly backin out of this thread into the bushes gif here

John Francis Donaghy said:

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Do you happen to own a bright green suit with big dollar signs all over it?

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No, but I do own a secret country that only rich people know about

Quick question --

How are duplexes generally appraised? I know they are suppose to be based off comps but I assume bank wants to know income approach.

I am mainly in SFR RE but have bought/held/sold a 12 unit apartment so I am very familiar with the process.

Apartment should have been appraised off income approach but my banker always threw back CMAs for 4 plexes back at me. I was able to pull cash out a few times in 5 years but I feel I should have been able to pull a lot more out. Of course, my leverage was minimal because he was a local bank and was giving me by far the best terms so I was never going anywhere else.

Depends on purpose of ownership. If you live in a unit it's just market value. If investment then you get market value but also an addendum with market rent numbers. Appraisers here might provide a better explanation

Roy coy said:

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Quick question --

How are duplexes generally appraised? I know they are suppose to be based off comps but I assume bank wants to know income approach.

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Good question, very difficult to answer. Answer that question from an Austin perspective would be very different from a Bryan TX perspective.

You would think market value is market value. Not so with duplexes especially in a hot market. Appraised value can change drastically in very short order. Here in Austin, the rate of appreciation has exceed the rate of rental income increases. So traditional income formulas have become outdated in Austin.

1st problem is that there may not be any comps that are usable. Here in Austin, many duplexes are sold off market which makes it hard to find comps.. Income approach is a good start, especially from an investors point of view. Although that approach is not as important to an owner occupant. Rents for duplexes vary WILDLY, because many owners have not kept their properties up and have long term renters. It is not uncommon for an investor to evaluate the property and realize that each side is under rented by 150-250 each side. Someone with a good eye can see the value, where others may not.

Since 2008, when it became standard that an investor had to put 20% or more down has actually made that multi-family segment more stable. Before 2008, I could actually find bank owned or financially stressed sellers. Now days owners of duplexes selling are not stressed to sell so they tend to get the terms they are asking, especially here in Austin. It is not uncommon to find realtors who don't know how to price a duplex and occasionally you will find screaming deals, especially if you can pay cash. Coming soon properties usually get sold before listing, mainly because those realtor don't have a clue and the owners are out of touch.

As an investor, I have passed on duplex deals that would be outstanding deals for an owner occupant.

For myself, I start by using the 1% rule which is a good guideline. Usually I can find that outside of the Austin metroplex. I have 17 units now so I have become very selective on new deals as I have all the buy and hold that I want. However, I won't pass up a deal if I can steal it. Don't know the 1% rule? Go to biggerpockets.com and learn.

A new phenomenon in Austin is the condo-ing of duplexes. I have been buying since 2002 and have never sold any of my duplexes. However, in the Austin metro plex based on what I have learned I will condo them and sell each side when I become ready to sell.

Quick story:
Met a young couple age 31/32, they are renters and have part time jobs. Absolutely no real income and no reserves, but they opened my eyes concerning duplex investing. Last November they found a duplex in East Austin, 800 sq ft each side for 260k, they put another 60k rehabbing. They showed me the property a week from listing. They funded EVERYTHING with HARD MONEY. Best they were going to be able to rent each side was about $1300 each side. I did not think they were going to be successful they had 320k in the duplex putting up for sale, what could they possibly make. This process took about 6 months paying the hard money lender.

They got an attorney to condo each side, cost 4k. They sold each half for 235k each side in East Austin. Contracts obtained in 24 hours for both sides to two different buyers. Appraisals came in 3k short of asking and they compromised with buyers coming down 1.5k each. Crazy and I would not have believed it, if I hadn't seen it myself. Can't find a SFHs less than 250k within 10 miles of the Capital that are live-in-ready.

I don't think I have given you a good answer, it just depends on what you the investor is comfortable with, whatever your goal is (buy and hold, or flip) and minimum income/profit your targeting.

Cheers

Scrap, do you intend to keep replicating this model or do you want to move into bigger deals?

I'm just starting. I had a SFR rental that we sold and turned into a gym business, then we used hard money to BRRRR (bigger pockets disciple myself ) a turn of the century triplex near The Pearl and now I have a lead on a huge value add deal on a 21 unit apartment complex that I am working. I don't really want spend much time in the SFR and duplex/triplex market. I am ultimately working to syndicate bigger and bigger deals.

Congrats on your 17 doors!!

mwp02ag said:

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Scrap, do you intend to keep replicating this model or do you want to move into bigger deals?

I'm just starting. I had a SFR rental that we sold and turned into a gym business, then we used hard money to BRRRR (bigger pockets disciple myself ) a turn of the century triplex near The Pearl and now I have a lead on a huge value add deal on a 21 unit apartment complex that I am working. I don't really want spend much time in the SFR and duplex/triplex market. I am ultimately working to syndicate bigger and bigger deals.

Congrats on your 17 doors!!

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You bring up an interesting question. I have often thought about expanding. Searching for better and easier ways to become more profitable.

My problem is this, I know duplexes. I'm very confident with that strategy and therefore it is easy for me to execute. I would like to get to investing in bigger projects but I will need to build confidence in doing so. Working with experience investors might be the ticket for me.

I am always open to exploring other opportunities. I've already won the financial independent game, I just don't want to put myself in a position to lose it.

I'm in Austin, and would like to meet up one on one to discuss if you have something in mind.

Cheers.

Check out Old Capital Podcast for some fantastic multifamily syndication discussions. They have a huge event coming up in September in Dallas where you can go meet and start networking with leaders in the apartment world. I unfortunately have a commitment that is keeping me from attending. I'd love to meet up sometime to discuss real estate and goals. Never know what might happen from that.

I have some big things to get wrapped up this year and then I will likely join the Brad Sumrok or Lifestyles Unlimited groups to get rolling.

Don't join a group....do it yourself

fdt00 said:

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Don't join a group....do it yourself

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Ditto!!!! Not a big fan of Lifestyle Unlimited, but to each their own.

I've gotten this far by myself, it's taken me years if study and cost me more in mistakes than it would have to join one. I want to grow fast and avoid the self learning mistakes.

May I ask how you got started in syndication?

While I agree that multifamily properties are great, the vast majority of real estate bought and sold is still single family, and this is what drives the housing market.

Buying a multifamily property is not feasible or appealing for most people, despite how much financial sense it often makes.

Yep! As my man Jim Rohn would say..."walk away from the 97%, it's crowded at the bottom. There's plenty of room at the top!"