New To Investing, Help!
I am looking at buying a set of duplexs to hold and rent. There are 3 duplexs (6 units) and I would pay $225k for them. They are currently all rented for $520 - $550 a month. Does this sound like a good deal?
Financing question: I have contacted two lenders (I get more quotes later) and have been told that each of the three duplexs requires seperate loans. This is makeing closing costs very high. Does this sound normal? The duplexs are all together sharing one drive off a main road.
Find out how many parcels there are. If there is only 1 parcel, then you'll have to get a commercial loan (tougher to get) or separate them.
You WANT residential (not commercial) financing.
Have you run the numbers to see how much money you'll make (or loose) every month??? Seems like a VERY slim, perhaps negative cashflow deal. In my area rents are about the same and that's what a 4 plex is selling for (and those barely cash flow).
Finally....duplexes are appraised based on comps NOT income. That is usually a bad thing as it drives the prices up. I'd look at 3-4 units or less expesive duplexes.
Just my $.02
Is the price 225K for all or 225K per duplex.
It is better to have separate loans on each if the properties have separate titles. Leaves things more flexible if you want to see or exchange 1 or 2 later.
Have you run the numbers? DId you allow for vacancies, maintenance, etc? A very crude number would be 35% of the gross revenue lost to expenses, etc. A lot of lenders use 75% of the gross rent as that which is available to service the mortgage (the balance being spent on the operating expenses).
Everything up to 4 units is consider residential and is priced based on what people with pay (comps of other sales). With 4 units or less people can obtain owner occupant financing if they live in one unit.
5 units and above are valued based on the income the property produces. What multiple of income is property X priced at compared to property Y. Mostly comparing NOI and not gross income.
John
[addsig]
Ahh...good point. I re-read the original post.
If that price is for all 3 then it looks like a decent "cash flow" deal. That said, I don't know the duplex market in your area.
One point, you mentioned separate loans are making the closing costs much higher. This should not be a factor. Many of the costs are a percentage of the sales price or loan amount. So three small loans should not be substantially higher than one big one. There are some costs that are levied on a per transaction basis, like processing, admin fees, underwriting, document prep, etc. but should not be a deal killer. Most lenders should be able to handle all 3 loans. Also see if you can get a little relief on repeat costs for doing all three.
Thanks for the help! I hope I'm using these terms right - There are three Duplexes each consisting of 2 units for a total of 6 units. Each duplex is deeded separately - requiring 3 separate loans I have been told. Each duplex is selling for $75K for a total price of $225K.
From what I just read if I multiply the incoming rent by .65 (35% is expenses) the rent will almost exactly cover the estimated mortgages.
Right now each Duplex has one deed. In the future, how would I go about separating the deeds into individual units so that I could sell them one at a time? Is this something that is feasible?
Again - thanks for the help!
:-D
Your followup question is more difficult.
The answer is "maybe" you could separate them.
You either turn them into condos or twin homes. Talk to planning and zoning in your city. They may look favorably upon increased home ownership. You'd probably have to get gas, electricity, and water all separatly metered, have separate entrances, parking, etc, sufficient insulation.
Start talking to the city officers and they'll have answers for you there.
fire wall btwn the units is a big one as well to do conversion.
Planners are a weird bunch. I would have thought the same about the sfr better than duplex. Not in the city asked..
That's the only duplex zone we have so we're not going to let you. Beside, your parcel has to be >=40K sq. ft to do a convertion. ACK!