Is Now The Time To Buy A Duplex?
Question: I’m ready to purchase a 2-unit property. I’m trying to buy and rent, hopefully with enough income to break even on the mortgage, taxes, insurance and upkeep if I can. Houses in the $400K range aren’t that available, and given mortgage rates and perhaps $95,000 down I am lucky if rents at $2,200-$2,400 per month will enable me to break even. I know there are three-year ARMS out there with lower initial costs, but they’re risky because rates could rise in the future. Should I still be thinking about this strategy as a 6-12 year investment?
Answer: Essentially you want to buy a two-family property and instantly have a situation where one unit covers all costs. That would give you a rent-free unit. Then you want to know if such an investment is a better choice than the stock market.
Let’s assume that you now rent and that you also obtain a benefit from the $95,000 in cash you have available. As a first step you have to look at the cost you now pay for shelter and subtract the interest, dividends or whatever other benefit you receive from your cash. How would owning a two-unit property with a given rental compare? (You have to subtract the benefits of the $95,000 because when the money is used to purchase the two-unit property the interest, the dividends and other benefits it now represents will be gone.)
A second issue concerns the matter of whether you want to be a landlord. Have you considered vacancies, maintenance, having tenants nearby, lifestyle issues, etc?
Third, no one knows what properties will be worth in the future -– and the same goes for stocks. Moreover, you are not buying all real estate or all stocks, you’re buying a particular property in a given community. What the market does generally and what specific properties do specifically may be different.
There are some things which cannot be calculated without assumptions and it follows that such calculations are only as valid as the underlying estimates and guesses. In the case of future values, there’s no way to know beforehand whether today’s presumptions will be on the money at some point down the road –- or way off base. History has little value because past performance does not guarantee future results. As proof, think of all the people who invested in Enron, Fannie Mae and Freddie Mac because the numbers looked so good….
Before going further, speak with several local real estate brokers who work with investors. Also, check with the local community planning office to see how they envision the future in terms of population growth, jobs, etc.
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Syndicated originally by Content That Works and posted with permission.
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