You can create your own duplex investment by converting a home into a duplex. This can make a negative cash flow house into a positive cash flow duplex. Of course, zoning and permit problems are definite possibilities.

Houses may be a losing proposition as rentals in your area. They are in many areas now. However, if you find the right kind of home, you may be able to convert it into a duplex and turn that cash flow situation around. Let’s look at an example.

Make A Duplex Investment

First you go to the county or city to find out what residential areas are zoned for both single family homes and duplexes. Take a map and mark it well, so you won’t waste your time looking at houses that you’ll never be able to convert. You don’t want to try to get properties rezoned for small projects like this – it just isn’t worth the trouble and probably won’t succeed.

Suppose you find a 3-bedroom, 2-bath house in one of these areas. The seller is asking $102,000. This is less than the surrounding homes, but it is because the home is in rough shape. You don’t want to tie up more than $20,000 in any one project, so you quickly realize that positive cash flow would be difficult to obtain, since the usual rent for houses like this is around $775 per month. You look at the home anyhow, with the idea of making a duplex out of it.

The repairs necessary are mostly cosmetic. The bathrooms are on opposite sides of the house. There is an office that can be made into a bedroom. There is a natural place to divide the house that will leave a dining room on one side – which will become a living room – and a living room on the other side. One end of this living room will be used to make a small kitchen.

You will end up with two 2-bedroom units, which rent for about $630 in this area. The vacancy rate for the area is 5%, so you project an annual gross income of about $14,360. Taxes, insurance and repairs will be about $4,660, leaving a net income before debt service of $9,700.

You have already checked, and know that you can borrow 90% of the value of a duplex, at about 8% interest on a 30-year loan. You figure (roughly – all of these numbers will need to be firmed up before closing) that you want cash flow of at least $1,800 per year. Subtracting this from the $9,700 leaves $7,900 for debt service. Dividing this by 12, you see that you can have a payment of up to $658 per month.

Now you pull out your amortization book, and turn to the page that says 8% interest. Working your way down the monthly payments column under “30 years” you see that you can borrow up to $90,000 and still make your plan work. Since you don’t want to put more than $20,000 of your own money into the deal, this means the whole project has to be done for $110,000 or less.

Roughly estimating the construction costs, clean-up costs, holding costs, closing costs, loan costs, refinance costs (once the project is done) and other expenses, you figure your total costs will be around $23,000. When you make your offer, you will have an inspection contingency that allows you to cancel the contract if there are problems that put the likely cost beyond this.

Subtracting $23,000 from $110,000, you arrive at a figure of $87,000. You know this won’t thrill the seller, but this is the price you need to make the deal work for you. You offer $83,000, and he counter-offers at $93,000. You offer $85,000 and drop the clause that had him paying $2,000 of the closing costs – you had only put it in there as a negotiating tactic anyhow.

Eventually, when he realizes that you really will walk away from the deal, he agrees to $88,000. You decide that this is close enough. Your inspections and quotes come in and you are satisfied, so you close. You borrow only 80% of the value to avoid mortgage insurance and points. You intend to refinance when you have the place ready anyhow.

You find some cheaper ways to get the job done, and the total costs up to the day you rent the units is just $20,500. This means you have total of $108,500 into the duplex. You shop around and find a new loan at 7.5% interest. You also decide to finance 90% and have less cash flow. You like the idea of having only $11,000 or so of your cash invested.

You borrow $97,650, making your payment $682 per month, or about $8150 per year. This leaves $1,550 per year cash flow – close to what you wanted. Your cash-on-cash return is around 14%, and if rents are rising in the area, it will soon be higher. This is why you might want to create your own duplex investment.

Article Source: http://EzineArticles.com/?expert=Steven_Gillman

We all know that over the last two years condo prices have taken a significant hit, while the prices of duplexes have remained more stable.  This would mean to me that as the economy recovers, we will see stronger increases in the condo prices vs. the price of duplex properties.

Does this mean that buying a duplex property instead of a condo is not a good idea?  No, in fact the reduced prices on duplexes makes it a great time to buy.  A quick search of the MLS reveals a good number of duplex properties across King and Snohomish counties all priced in the $200,000 – $300,000 range.  So you can buy more property and still have about the same monthly payment or even have it be a little less depending on your loan!

This does mean more work, but it still gives you a home with a yard instead of a box in the sky, and long term it means that you have control of an income producing property for a very small amount down in comparison to conventional multi-family loans.  In addition to that, but because you now own a rental property, you are in business for yourself which means you can deduct many more things on your taxes.  Find a good CPA or Tax Attorney and ask them what it can do for you!

Would I recommend a duplex over a condo based on straight appreciation?  No, but appreciation is only one factor in evaluating if a property is a good deal.  Too many people got short sighted on that during the boom, and forgot that equity building and cash flow are important too.  For those willing to do a little extra work, I would definitely recommend a duplex over a condo as the property to purchase for a first time home.

Looking for a duplex real estate investment in the Everett area?  How about this property on 63rd St SE! 

Each unit has 2 bedrooms and one bath, and as a bonus each one has two covered and two uncovered parking spaces.  All the appliances including the washers and dryers stay and being just a few blocks to Everett Golf & Country Club this duplex is definitely one to look at!

PDF Flyer for This Everett Duplex

Give me a call at 425-773-3149 if you would like to take a look a this duplex or any other investment property in the Seattle area!

The convention is in lending that multi-family properties are those with more than 5 units and as such are considered commercial properties.  Properties with less than 6 units are classified as residential properties and loaned on just like you would a single family home.  The difference being on how they are valued.

DUPLEX & 4-PLEX = COMPARABLES APPROACH
MUTLI-FAMILY PROPERTIES = NOI & CAP RATE VALUATIONS

Doesn’t make much sense does it when they generally bought as income producing properties does it?  The one caveat to this is that because two and four unit properties are counted as residential homes, you can purchase them with FHA loans and live in one of the units.  As I have discussed before, buying a duplex or 4-plex as a first home is a great way to get started in real estate investing.

There are some other tricks that can be applied to rental properties because of the differences in how they are valued as well.  If you are in the Seattle area and thinking of investing in a rental property or twenty call me and we can discuss some of your options!

For rental properties(single family homes, duplexes, 4-plexes) this is especially important and often overlooked.  If you have just taken over, raised the rents and had tenants move out and new ones come in, you don’t want any surprises.  I can only imagine the headache that it would cause if your new tenant found out their house had been robbed by someone that had a key to the place!

So get your doors rekeyed after tenants move out.  It is generally not overly expensive and is a lot easier to deal with than having a property robbed and possibly getting sued by the new tenants.

Until the drop in the market, finding a cash flowing property in the Seattle area market was a pretty difficult thing to do.  Unless of course you wanted to put 30% down which seems a bit over the top to me.  Now with the market down and banks cutting deals on REO and short sales, I am definitely seeing more properties coming through that make sense to buy.

Part of buying a residential real estate investment property right, is getting all of your costs worked out ahead of time.  That way you will know if it is going to have positive cash flow.  One larger item that many people forget or think they can do themselves is property management.  I strongly encourage everyone to hand that job off to professionals. 

Yes, property managers do take a cut of the revenue, but consider that the reduction in headaches and time spent dealing with your rental property is well worth the price.  Additionally a good property manager will save you money by screening for good tenants, and not letting bad tenants slide on the rent.  I have seen a good number of owners get stiffed because they bought a tenants sob story on why they couldn’t pay the rent.  Of course they always say they are good for it, but hardly ever make good on the promise!

If you have pulled your money out of the stock market and are wondering what to do with your 401k or IRA, consider buying a rental property or two.  Whether a single family home, duplex or fourplex, the numbers are looking better than they have in a while, and as bad as it has been in the last few years, the real estate market looks a whole lot more stable than the stock market these days!

Obviously if you are comparing a duplex to a condo you are going to be occupying one of the units in the duplex.  What becomes important then, is that you are deferring part of your total mortgage payment by renting out the other half of the duplex.  Let’s look at a real world example.

In Everett Washington right now, the average condo price is right around $250,000.  With 10% down that puts your payment at around $1350 per month.  Looking at new duplex properties in Everett, you could probably find one for around $320,000.  Again with 10% down, your payment will come out to be roughly $1726.  So for a little less than $400 a month more, you get a whole extra unit to rent out.

If you live in one half of the duplex, and rent the other out for $1000 per month that would bring your share of the mortgage payment down under $750 a month!  That is cheaper than rent!  The really great part is that because you are going to live in one of the units, you can get regular financing and FHA loans to purchase your property.  This means that you can get into property with as little as 3.5% down.  Plus there is still talk that FHA will allow buyers to use their $8,000 tax credit towards their down payment.  If this is the case, you could be in a duplex for under $5,000 out of pocket.  That is just downright amazing!

I definitely encourage anyone that is wanting to purchase a condo, but that is interested in owning multifamily property, to seriously consider a duplex or even 4-plex to live in! 

If you are ready to make the jump, and purchase a duplex to live in please give me a call at 425-773-3149.  I can definitely help you track down a property that is right for you!

As of this morning the average duplex in Snohomish County is priced at $383,457 and has been on the market 177 days.  That is a long time to be sitting!  On the low end are the Everett fixer duplex properties, the cheapest is a meager $185,000.  On the other end of the scare are the overpriced new or nearly new duplex properties topping out at around $730,000.  I see no way those are going to cash flow with any reasonable sort of down payment.

In contrast, the sold listings tell the story of what duplex properties investors are actually buying.  In the last 3 months a mere 12 Snohomish county duplex properties have sold.  When it comes to what they are selling for, the average duplex sale price is $327,879, and none of those were over $480,000. 

Looking at these numbers, I just wonder how many owners are bleeding, sitting on duplex properties that do not have positive cash flow.  Personally if I were wanting to start investing in small multifamily properties, I would make sure that I had my financing in order, a solid down payment, and then start making offers on some of these properties that are close to being priced right, but have been on the market too long. 

If you are ready to buy or sell a duplex in Snohomish or Northern King County give me a call at 425-773-3149.  I would like to sit down and discuss the market conditions and how they relate your needs and situation!

Everyone by now has heard that right now is the best time in the last 20 years to purchase property, but most people are not in a position to take advantage of this opportunity.  If, however, you have pulled all your money out of the stock market (hopefully before it tanked)

There are some rules and this is something you want to get some advice on, but it definitely is a much better way to make use of your retirement funds than gambling it on the stock market.  The big deal is that you can’t co-mingle IRA funds with your regular money.  This means that your property will have to be held by your trustee, and all the rents have to go back into your IRA.  The basic rules look like this:

Despite all this, purchasing rental properties with your IRA money is still a winning bet.  There are some hoops to jump through, but you get to take advantage of the appreciation and cash flow from your new rental property to balloon your retirement account.

If you are in the Seattle area and would like to sit down and discuss the current market and what opportunities exist for purchasing rental real estate, I am at your disposal.  You can call me directly at 425-773-3149 or send me an email at Jacquie@jacquielciff.com I can help you locate your ideal rental property and even put you in touch with some independent trustee managers to handle your account.

Jacquie Cliff – The Amazon Negotiator
Let me lead you through the Real Estate Jungle!

Real Estate Broker, Loan Officer and Real Estate Investor serving:
Lynnwood, Bothell, Mill Creek, Seattle, Bellevue, Marysville, Mountlake Terrace, Edmonds, Everett, Snohomish, Kirkland and the surrounding areas!

Call me with any of your real estate questions at 425-773-3149 or email me at Jacquie@jacquiecliff.com anytime!

Lets look at a current example pulled from the MLS, a 4-plex in Lynnwood, listing at $435,000.  Assuming that we don’t even try and negotiate the price down (and I would) it would break down like this:

5% Down Payment – $21,750

Payment at 5.5% Interest – $2,436

A bit steep for a lot of people out there right now.  BUT!  Lets not forget the other tenants in the building in our lovely Lynnwood 4-plex.  They are each kicking in about $750 a month for their units for a total of $2250, and bringing or monthly cash flow down to a staggering $186!  Now I know I didn’t include the taxes, insurance and other expenses, but even with those I am sure you can see that living in a portion of a property and renting out the other units is a GREAT way to get started in real estate investing, while saving some money on your own housing to boot

I will say that not everyone is cut out to manage their own property.  For those people that are forward thinking enough to forego buying a single family residence, and buy themselves an apartment of their own (buy way of purchasing a multi-family property and living in one unit)  there is definitely some big benefits.

Consider the just the difference between the appreciation on a $235,000 condo, a typical purchase for first time home buyers and our example duplex.  At a very conservative 3% appreciation over 5 years, the condo would have appreciated to about $272,500.  A $37,500 gain which isn’t bad.  The 4-plex on the other hand would have grown to about $504,250, a gain of $69,250!  There are of course the side benefits of any cash flow, tax savings and so on.  Plus you have the ability to increase the value of your rental property even further by improving the property and raising rents!

It is my sincere hope that if you are considering buying a home, and have a spark of desire for real estate investing, that you look to living in your first multi-family property.  The advantages are definitely there, and it can act as a gateway to your real estate empire!

Jacquie Cliff – The Amazon Negotiator
Let me lead you through the Real Estate Jungle!

Real Estate Broker, Loan Officer and Real Estate Investor serving:
Lynnwood, Bothell, Mill Creek, Seattle, Bellevue, Marysville, Mountlake Terrace, Edmonds, Everett, Snohomish, Kirkland and the surrounding areas!

Call me with any of your real estate questions at 425-773-3149 or email me at Jacquie@jacquiecliff.com anytime!