Would You Buy This Duplex Rental Property?

Summary

In this insightful video, a seasoned real estate investor evaluates a duplex deal presented by their agent, focusing on its potential cash flow and appreciation. With the property fully renovated and projected rents above the 1% rule, the investor conducts thorough due diligence, questioning the seller's motivations and verifying rental estimates. Despite a promising 6% cash-on-cash return, concerns about location and lack of value-add opportunities lead the investor to consider negotiating a lower price to improve overall returns. The video highlights the complexities of real estate investing and the importance of a balanced strategy.

Takeaways

• 😀 The speaker is evaluating an off-market duplex deal, which they typically find exciting.
• 🏠 The duplex has three bedrooms and one and a half bathrooms per unit, which are desirable features for renters.
• 💰 The property is listed at $325,000, with potential rental income projected at $1,800 per side, suggesting it meets the 1% rule.
• 🔧 Significant renovations have been completed, including new windows, roof, and updated interiors, potentially lowering future maintenance costs.
• ❓ Concerns arise from the owners' personal conflicts, leading to questions about the quality of the renovations.
• 📉 A property manager estimates rents slightly lower than the agent's estimate but still supports the 1% rule.
• 💡 The speaker aims for a 6% cash-on-cash return, which is considered decent in the current market climate.
• 📊 They use a framework balancing cash flow and appreciation, avoiding properties with low returns on both fronts.
• ⚖️ This particular deal falls just below their preferred buy box due to unclear appreciation potential and lack of additional value opportunities.
• 🤔 The speaker plans to offer 10% below the asking price to increase potential returns to 8%, inviting audience feedback on their decision.

Q & A

What type of property is being analyzed in the video?

The property is a side-by-side duplex, with each side featuring three bedrooms and one and a half bathrooms.

What is the asking price for the duplex?

The asking price for the duplex is $325,000.

What is the projected rent for each unit in the duplex?

The projected rent is about $1,800 per unit, totaling approximately $3,600 for both units.

Why is the investor hesitant about this deal?

The investor is concerned because the property is currently being renovated and the owners are selling due to personal conflicts, raising questions about the quality of the renovation.

What is the investor's primary investment strategy?

The investor focuses on long-term rentals for retirement, along with private lending, multifamily investments, and short-term rentals.

How does the investor assess potential cash flow from the property?

The investor calculates a 6% cash-on-cash return by factoring in expenses like repairs, maintenance, and insurance against projected rental income.

What is the significance of the 1% rule mentioned in the video?

The 1% rule suggests that a property should generate monthly rental income equal to or greater than 1% of the purchase price to be considered a good investment.

What type of market characteristics does the investor look for in potential properties?

The investor prefers properties that offer a balance of cash flow and appreciation, ideally in good neighborhoods with growth potential.

What action did the investor decide to take regarding the purchase price?

The investor decided to negotiate for a 10% reduction in the asking price to improve the cash-on-cash return and increase equity upside.

What does the investor believe is the biggest factor affecting their decision to buy?

The investor is concerned about the lack of appreciation potential and the fact that the property has already been renovated, limiting further value increases.