Can I bounce this off you guys?? - Posted by Tammie

Posted by Jim IL on October 23, 2000 at 20:42:40:

Yes, you are looking at this wrong.
But that is okay, at least you are looking.
So, lets look at what info you gave us:
You buy for $55k now
Pay: $428/mo
Rental income BEFORE expenses: $696/month

You said you feel this will only sell for $60k in 5 years?
Where did you get this number?
I would think that even with minimal appreciation it will sell for more than that.
But, just assume $60k is right.
YOU will not pay the $30k, your tenants will.
Assuming your vacancy rate is LOW and your other expenses are small. (Probably not, but for the sake of this post, we’ll stick to that.)

So, you are into the home for NOTHING down.
You collect cash flow every month of $268 ($696-$428=$268)
When you sell, the payoff is $54.3k, and you sell for $60k (Again, this seems low to me)
So, leaving the rent as is, and no other unforseen expenses, your profit is:
$268/mo x 60 = $16,080.00 cash flow total
$60k - $54.3k = $5,700.00 (minus closing costs of course)
Total: ~$21,780.00
I am not sure why you see the $30k added on to the loan balance at payoff?
This appears to be where you are lost.
And, remember when you buy a rental unit like this, you MUST allow for repairs, maintenance, vacancy, insurance and taxes.

You also do not mention if it needs repairs now, and what it is worth?
What is the FMV?
Repairs needed?
Is it vacant?
If not, what are the tenants like?
How long?
What are the market rents?
Can you raise the rent?
Other properties like this in the area?
What do they rent for?
Sell for?
what is your market like?

A ton of questions, and frankly, before I got a loan on my own residence to buy it, I’d want ALL the answers to these and a few more questions.

Anyway, hopefully this got you started and cleared up some confusion without adding too much more.

Good luck,
Jim IL

Can I bounce this off you guys?? - Posted by Tammie

Posted by Tammie on October 23, 2000 at 20:13:06:

We want to buy a duplex for $55K. It brings in a total of $696/mo. We can get a home equity loan (on our house) for 8.25% for the whole thing. Our monthly payment would be $428(a total loan of about 57K…extras for the closing, appraisal, etc)… Everything looks ok so far, but here’s the problem. Assuming we will sell the place in 5 years for $60K, we will have paid almost 30K in interest and against the principle. The loan pay off will be 54.3K. That shows me that we need over 85K to break even!!! Am I looking at this wrong?? Am I missing something?

Thanks for any help!!


Reasons - Posted by Bud Branstetter

Posted by Bud Branstetter on October 24, 2000 at 09:10:05:

As an investor you should buy for one of two reasons. The first would be cash flow/return. Using figures from Jim Piper, you should expect 40% of the gross to be expenses. Those include utilities, taxes, maintenance, management, vacancies, etc. Yes, you can do the maintenance and management yourself, but would a true investor. Are you as an inexperienced landlord on two units going to have 90%+ occupancy. Cash flow seems to be break even. Only you will know if rents are below market.

The second reason you might buy is enbedded equity/profit potential. A good investor always likes to buy with the profit built in. You have to discover what market value is for this property. It could have an existing loan that if you took over could leverage and increase profits. It could have an existing loan that that is building equity quickly. Many things that you could do. Ask yourself this: Does it bother me or my spouse to have my own home mortgaged to buy this property?

Re: Can I bounce this off you guys?? - Posted by Mark-NC

Posted by Mark-NC on October 23, 2000 at 20:53:14:

Jim is right. I don’t see a deal here at all. I would also assume that the taxes and insurance are not included in the payment of 428 per month. This is going to make your numbers even tighter.

Unless I am missing something, I would pass on this one.

Best wishes,


Re: Can I bounce this off you guys?? - Posted by Tom

Posted by Tom on October 23, 2000 at 20:47:38:

reducing it to its simplest form using your numbers without accounting for tax breaks, deprecation, repairs and vacancies.

Buy (55,000)
Closing cost (2,000)
Total payments (25,680) — 428.00 x 60 months
Total income +41,760 — 696.00 x 60 months
Sale price +60,000 — no growth
Closing cost (1,000) — you sold it yourself

Profit for 5 years +18,080