Is It A Good Deal If I Can Build A Duplex And Break Even After Rent And Taxes?
The town I want to build in has 500 people right now. The 2009 projection is 6000. It is about 10 minutes from Kansas City. Due to the fact that other little towns have allowed tons of Duplexes over the last 5 years, this town has set very strict zoning laws. The sub. I want to build this in is being developed by a very savvy RE. It is 97% residential and will have a total of 5 duplexes. There are three now. One sold last month for 205,000 (appr. 240,000) and one was just built. The builder has about 237,000 in the duplex. They are getting between 825 and 900. I can buy two bed duplex's in other towns for 169,000 renting for 725 a month. However, in these towns there are literally 100 duplexes within three blocks of each other. I am reasoning that I would get better tenants in a small town where the duplex is actually in a nice residential neighborhood. I have good credit and can lock in the loan for 5.25 for 20 years. With taxes and the mortgage and insurance I would be at about break even if I could get 800 rent. I would also get close to 4,000 back at tax time. I guess I would rather have new properties with low maint. rather than make a couple of hundred dollars a month on prop. that will need maint. and is located around a lot of other rental prop. This will be my first rental, so feel free to tell me I am missing the big picture. Any suggestions or criticisms welcomed. ________________________________________
I am looking at buildin a duplex. Each unit will have 1450 sq feet. The land and duplex will cost me about 185,000. The town is growing quickly and the city has made it difficult for anyone else to get approval for multi-family zoning. I hope to get 800 a month for each unit and with the tax savings, I will be able to make it cash flow. Hoping the town grows and duplex appreciates. Am I being overly optimistic?
Are you being overly optimistic? That I don't know, but you are certainly willing to take high risks.
The bottom line is money / cash-flow.
Look at the vacancy rates in this town and the "other areas". If the other areas have 100's of duplexes, but they're all full, then there may be a reason for the quantity...they need them.
Look at the "other areas" maintenance costs. Are they really spending that much to upkeep?
If this small town is projected to grow from 500 to 6000 in 5 years, how does that compaire to the projected 5 yr. growth in the other areas? Does the small town have jobs to support these new residents?
A great tool to analyze properties is offered right on this site, the Proforma-nator. Plug your figures in there, and see if the property will cashflow for you.
http://www.thecreativeinvestor.com/modules.php?name=Tools&op=ProForma&FMV=240,000&PurPrice=205,000
Good Luck!
Why not do a 30 year amoratized loan or an interest only loan to increase your cash flow.