Real Estate ? For Ray (Or Others)

Might make an offer on an investment property. It is an old house converted to a duplex. It is fully rented now and has a good rental history. The owner is a recent widow who owns it free and clear and wants some income with no headaches or tax problems. She is willing to carry most of the purchase, with the proviso of the note not being paid off within 10 years. If she accepts the offer we make, I think we would be looking at a 36% cash-on-cash return and 9% return from principal reduction in the first year. These numbers would get a little worse with counter-offers or unforseen disasters. A litle better if we can jack the rent up a bit. I think we can raise rent on one unit because the owner is putting in a new bathroom. The other unit has a good tenant who wants to stay and rent was agreed on 3 mos. ago. I would wait at least until she had been there a year to raise the rent, and then wouldn't gouge her too much. We were only able to see one unit, and it was very well maintained for an old, cheap rental property. (Owner a realtor who put some time and money in this.) Any experience with duplexes? Any hints? We will have an inspection and everything. What about the provision of not paying it off? We can't imagine paying the note off w/in 10 years, but what should we think about on that term? Any comments appreciated. It seems like a good investment without a big outlay, but it will be our first real estate purchase other than our house, so I worry I overlooked something.

If you don't sell it at a profit before the end of ten years. Refinance.


SPM,...an insurance guy giving property advice, look else where for real advice...

one thing is she cant force you not to pay it off early. you may have an agreement that you may want to keep but she cant force you to not pay it off. here is why. if you wanted to pay it off and she wouldnt accept money in full, you would just not make any further paymetns. then she would have to start forclosure and demand payment in full. simple.

single family houses get the best appreciation. duplexes and the apartments, are the first to go emtpy when things are bad and the last to fill. but they can be good investments as the cost to income is higher. i have some of these currently, and they do well. but when it comes time to sell you must realize you will probably be selling to an investor who wants a good deal. so your upside is governed by the properies income rather than appeal.

these properties must be bought cheaply and do not fall in love with them and spend too much making them nice as all you are doing is looking for return on investment.

you will not be paying it off soon anyway as interest rates will never be too much lower than now so it will mostly be one of those places you keep paying on until you sell.

also a non payoff clause may come back to haunt you as you would not be able to refinance for more money or perhaps even sell unless you worded things right. but like i said its really not enforceable.

i dont understand your figures but you must factor in interest, insurance, taxes, rental management fees, ads, utilities, allowance for future work, like roofing, paint, etc. which will need to be done at some time.

always make an offer quickly with contingencies as y0ou can always get out but they cant easily if they accept. you can always renegociate as you find things wrong, which you always will.

Well, it's a cheap one. I figured 5K down and yearly profit of 1800. Then 450-500 principal reduction in the first year paid by tenants essentially. I tried to figure all the expenses, but didn't factor in certain things like future roofs. I have never calculated depreciation before, but the formula I tried from a real estate book indicated to me we would probably end up with no taxable profit. I don't understand deductions of real estate losses. We may be over the income threshhold, or I hope we will be soon, so I don't know if this will be a factor. I don't want to shoot for losses anyway. :-)

you need to look at total cost. gross rent. net rent after all expenses to see return on investment. you are paying the whole amount for it not just the 5k down. and things like variable interest rates also come into play if appropiate.

remember the most money you make on rental property is the appreciation when you sell it so you have to see whats its going to look like in ten years.

some of the best investments are residential homes on business zoned property. you get to rent it until its time to sell to a business then you get top dollar.

these are the keys for me. by positive cash flow i mean after mortage, taxes, and insurance payments each month you have xtra monies..these go in an account for emergency furnace replacemnt, water heater etc, rentor stiffs you fund etc.


Location...if truly desireable location, and will appreciate fast and sure, then i'm willing to have a break even cash flow.


even tho i live near a college town, i fix a place up nice (i would never rent a place i would not be willing to live in myself) and then rent to families who often stay 3-5 years or more. am very particular who i let in a property of mine.


it's not a get rich quick thing, but over time, every property you acquire and keep rented will be bought for you by other people. a pretty good way to make money while you are sleeping.


it's not for everyone and it helps a bunch if you have carpentry and mechanical experience to keep the overhead expenses to a minimum


the sooner you start the better, even if you pay a little too much for a propery, (if it is a good one)in ten years or less it will surely be a non issue.

One thing to remember about Deductions. You have to make the money before you can deduct it.

But in Real Estate, you get to keep the principal after you deduct it, in the form of equity.

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Please do your homework. I would invest 12.95$ in the Tax Book that American Express puts out every year about this time. Go to the proper schedules and work backwards on your deal so you don't miss anything.