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Buying duplex - trying to be smart

1,831 Views | 16 Replies | Last: 4 mo ago by scrap
aggiebrad94
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AG
I'm evaluating a duplex today in hopes of buying. I will not be living in it - pure investment. The numbers look very good and I should be able to clear nearly $600 / month after expenses. Rents are $550 & $600. It's a bit cheaper than what I had been targeting but I'm still going to give it a look.

This will be my first duplex to buy. What do I need to examine to give myself the best chance of making a smart investment?
mazag08
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AG
I don't doubt that you've considered all these factors, but here's a list.

1. Taxes: Multifamily had a huge jump in Harris county this year, and it sounds like a lot of other counties have done similar. If the 2019 assessment isn't out, I would estimate on the high end.

2. Get thorough inspections and leave no stone unturned. Be aware of the age and condition of water heater, HVAC, roof, electrical systems, plumbing, etc. Any of these having problems in the first couple of years can turn your numbers upside down if unplanned for. I would set aside some cash flow every year for capital expenditures.

3. Is there an HOA?

4. Is it in a MUD?

5. Is it in a flood zone? Have you received an insurance quote?

6. I would plan for 10-12% vacancy every year unless you have some sort of confirmation from the market that it is lower.

7. If managing yourself, It's not much, but set aside $25-50 bucks from cash flow every month for advertising. When it comes time to lease, this can be a good nest egg to put toward marketing your home.

8. If having it professionally managed, build in 8-12% for management and make sure you have a detailed breakdown from them on the additional things they would come to you for.

9. Make sure you are researching your comps in the neighborhood every 6 months so you have your pulse on the market, how long homes are sitting unleased, and what rental rates are at.

Good luck!
dallasiteinsa02
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Duplexes don't tend to appreciate as quickly as other forms of real estate.
Diggity
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AG
Do your numbers include debt service?
aggiebrad94
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Diggity said:

Do your numbers include debt service?
Yes
Diggity
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AG
impressive. Sounds like you got a great price.
aggiebrad94
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AG
I toured the property at noon and it was a bit too run down for me. Renters are month to month and there is some serious foundation issues. Even though I could probably delay any repairs and just collect rent for a few years, I would totally feel like a slum lord.
Colt98
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AG
Slum lording makes the most money. You just have to deal with some head aches. I speak from experience.
rlb28
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Quote:

1. Taxes: Multifamily had a huge jump in Harris county this year, and it sounds like a lot of other counties have done similar. If the 2019 assessment isn't out, I would estimate on the high end.
Just offering numbers... friend of mine has a Brazoria County duplex

Taxes 2018 - $6,923
Taxes 2019 - $8,396
schwack schwack
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Quote:

Slum lording makes the most money.

I cannot charge someone to live in a place that I would not live in. I guess that's just a moral issue with me.
dallasiteinsa02
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schwack schwack said:

Quote:

Slum lording makes the most money.

I cannot charge someone to live in a place that I would not live in. I guess that's just a moral issue with me.
I know some pimps with that same thought process.
Colt98
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AG
Out of all my Rentals I have one small 10 unit apartment complex that I consider my slum lording. I still try and upgrade the units when tenants move out, but what I have learned over the last 7-8 yrs of renting to this demographic of renter(less than 30k/yr income), they could care less how nice the units are. My upgrades are not appreciated. They want a roof over there head, AC/heat and running water. Although they give me the most hassle, Ihave made a extremely good rate of return. Granted I bought the property right and own a construction company. I have begun to get some landlord fatigue dealing with these folks over the last couple of years and am attempting to sell this property as we speak. This property has been great for me to grow my rental business, and would be a great property for someone that wants to learn and be more hands on than I can currently be. So maybe this isn't your typicle slum, but compared to all my other properties, it is my slum.
mortgage
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AG

Quote:

I have begun to get some landlord fatigue dealing with these folks over the last couple of years and am attempting to sell this property as we speak.
Are you under contract? If not, I'd be curious to look at the numbers. jr DOT allison17 @ Gmail

Thanks!
schwack schwack
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AG
Quote:



I cannot charge someone to live in a place that I would not live in. I guess that's just a moral issue with me.


I know some pimps with that same thought process.

Maybe more of an oral issue with them?

Serious question though - just how many pimps do you you know?
mazag08
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AG
Colt98 said:

Out of all my Rentals I have one small 10 unit apartment complex that I consider my slum lording. I still try and upgrade the units when tenants move out, but what I have learned over the last 7-8 yrs of renting to this demographic of renter(less than 30k/yr income), they could care less how nice the units are. My upgrades are not appreciated. They want a roof over there head, AC/heat and running water. Although they give me the most hassle, Ihave made a extremely good rate of return. Granted I bought the property right and own a construction company. I have begun to get some landlord fatigue dealing with these folks over the last couple of years and am attempting to sell this property as we speak. This property has been great for me to grow my rental business, and would be a great property for someone that wants to learn and be more hands on than I can currently be. So maybe this isn't your typicle slum, but compared to all my other properties, it is my slum.


I might have an investor in mind. Can you email me details if you are still looking for a buyer?

Mazaggie08 @ gmail
Colt98
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AG
I will email you guys information when I can get to my office.
scrap
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Some myths about duplex investing that I have found not to be true.

1. Duplexes don't appreciate as fast as SFH.

I have found that not necessarily true. I think it depends more on the location and if the neighborhood is improving or not. Are the streets configured with all duplexes or a mix? Are the duplexes well maintained? I own duplexes in Austin, as well as in Bryan. I have seen superb appreciation in Austin at a much higher rate than that of close by like size SFH. Not as much in Bryan, but duplexes in neighborhoods in Bryan are not seeing the improvements seen in Austin. Also, there is a shortage of affordable housing in Austin, not so in Bryan.

Recently investors are discovering more cash flow with multi-family and many investors are content with duplexes vs jumping into a 4plex or small apartment properties. Here in Austin, duplexes are a very hot commodity and their appreciation is outpacing most other sectors.

2. Duplexes incur higher vacancy rates than SFH.

Since I began investing with duplexes (2002) my vacancy rate has been about 2.5%. I now have 26 units I manage. I think rates are lower for me because I keep my properties in excellent shape and I quickly jump out of the $500-$650 range into the $750-$800 range (especially in Bryan) and see a significant improvement with tenant quality and lower turnover. This can be done if you own more than one duplex in the area and you work with other owners to make a concerted effort to improve properties and ask for higher rents.

Recently another investor and I have bought 7 duplexes in Bryan and have taken rents from $550-$650 to $750-$800 by cleaning up properties and asking for more rent. The problem occurs when large corporate properties managers are not interested in improving properties and increasing rents. Finding ways to separate yourself from those properties (fence the sides to the front street), buying next to owners who have taken pride in their properties) will help combat the slumlords.

3. Taxes are higher with duplexes.

I don't find that the case. It may seem that way recently, but that is because duplexes have been slow to rise in the tax base. Many of my duplexes in Austin have jumped 100-130k (100% in valuation or MORE) in one to two years only because they were slow to raise over the years. In older duplex neighborhoods the tax rates are lower compared to newer SFH neighborhoods. I find value in older duplexes vs newer.

I have one 4 plex, although it cash flows wells, I can get the rents increased but still fight the lower quality tenant issue mostly due to the close proximity of other run-down 4plexes.
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