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Real Estate Opportunity

Stunt

Stunt

Diamond Member
An opportunity has come up and I would like advice on whether I should go for it or not. This fourplex in my city is on the market; has 3 of the 4 units rented (each 2 bedrooms). Considering I am single and not interested in buying a house at this point; a 2 bedroom appartment is more than enough; basically I'd live in the 4th unit.

The property is listed at $179,900 and has the following information:
"two bedroom units with full basements. This fourplex is in good condition with many newer features including new tub surroundings and mostly hardwood flooring in upper bedrooms and in main livingroom. Each unit has economical hot water natural gas heat with new boiler. New shingles in 2005. Unit#1 $600, Unit#2 $625, Unit#3 $620, Unit#4 $640."

I'm 23 and I estimate being here for 2-5 years, I have enough for the down payment and this cash flow from the rent would cover the mortgage payments fairly easily. I currently save $1700-$2000 a month and pay $650 on rent.

The property would generate $2500/mo in rent, meanwhile consuming $1200/mo in mortgage payments. After property taxes, utilities, maintenance etc. I still think I can come out ahead by $5k a year and continue to save my $1700-$2000/mo on top. If worse comes to worse, I can still afford to cover the costs of the property.

Thoughts/Suggestions?
 
sounds like a great deal...if that were here I would buy it and keep in mind you can deduct any fixups on your taxes to
 
Originally posted by: mrrman
sounds like a great deal...if that were here I would buy it and keep in mind you can deduct any fixups on your taxes to
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Really...Not bad 🙂
 
If you're sure about the $5,000 net operating income then it would be ok. After you sell it you could defer capital gains taxes by doing a 1031 exchange into some other property. (I think only the portion considered your personal residence qualifies for the personal residence deduction)
 
Originally posted by: Stunt
Originally posted by: mrrman
sounds like a great deal...if that were here I would buy it and keep in mind you can deduct any fixups on your taxes to
Click to expand...
Really...Not bad 🙂
Click to expand...

No not exactly. Any money spent on fixing the rental can be deducted from rental income or other passive income. You can't deduct it from your normal active income except for some exceptions.
 
Originally posted by: weadjust
Pay for a good home inspection. You don't want to find out about basements leaking after you bought it.
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I would definately be doing my due diligence.
 
How are you coming up with $2500 in rent? I though you are living in the 4th unit? Don't work your math on 100% occupancy. Unless you are in a super hot area, I think the number should be close to 80%.

Here are my number, correct me where i'm wrong. $1900 in rent from the 3 most expensive units * .80 = $1520/mo
$863 mortgage, $166 taxes ($2000/yr?) , $50 insurance, $150 maintenance. $1250 expense.
 
If here is in the US, this looks like a good deal. On the books you will be running a loss since you will have to take depreciation on the part that you rent out. This will offset any other income that you have.

Loan should be no problem since I think that banks figure on 75% of rent as available to pay the mortgage.

Basically you have a business worth less than it is selling for.
 
On paper it looks good. A good rule of thumb is 1% return per month for the cost of the property (179,000). You will exceed this. Bottom line is condition and location, location, location,

I own some rental property and you can count on about 20% vacancy rate. Set aside money for carpet, plumbing problems, HVAC, its always something.

I try to break even on the properties payment/insurance and upkeep with rent. Make the money on the tax breaks and property appreciation.

It's not a easy as Carlton Sheets makes it out to be. There are a bunch of ****** tenants looking for a free ride and they will trash you place.

If it works out a bunch of people bought you a four plex and gave you some great tax deductions.
 
Jumping headfirst into being an income propety owner is a good way to get burned easily.

Your operating income isn't accurate, nor does it take into account vacany, owner occupied units and various regular maintenence schedules to keep your property up to snuff and tenants happy and paying.
Remember that with multiple units you now have the responsibility to maintain the mechanicals and amenities of multiple households, as well as maintaining the grounds.
Generally speaking you should break even on a rental property but use the ownership as a vehicle for asset building, money loaning, and tax sheltering.
 
Even if it's a break even deal I'd take it if you're going to live in it.

1. Free rent while you live there
2. Appreciation of the asset
3. Profit when you move out and rent the fourth unit
4. If you decide to sell it you can bank the gains
5. If you decide to keep it you have an income stream
 
Originally posted by: drnickriviera
How are you coming up with $2500 in rent? I though you are living in the 4th unit? Don't work your math on 100% occupancy. Unless you are in a super hot area, I think the number should be close to 80%.

Here are my number, correct me where i'm wrong. $1900 in rent from the 3 most expensive units * .80 = $1520/mo
$863 mortgage, $166 taxes ($2000/yr?) , $50 insurance, $150 maintenance. $1250 expense.
Click to expand...
I currently rent for $650, so I save that if I lived in a unit.
 
What are your expenses? If you can figure out your return on capital (net income/asset purchase price) and if it's over 7%........ go for it.

At present 1900 rent- 1250 expenses = ~4% if it was fully occupied you could get around 9% cap return.

Also checkout Smithman this is a cool little trick I learned (for all you Americans...... in Canada principle residence mortages are not deductable generally and we pay no capital gains on the sale of the property).

What part of Ontario do you live in? Is it a college town?

Cheers,
Aquaman
 
Something else to consider: in 2-5 years, what do you plan on doing? more importantly where? It is not like an apartment where you can break the lease with little to no consequences when you take a new job a couple hours away. If you would be looking to sell sooner rather than later, will appreciation overcome any closing costs and other moneys put into the property? (my area has seen a depreciation in the housing markets so take that into consideration if your area is in a similar situation)

As pointed out by others, only consider 11 months rent rather than 12 for the year due to tenant vacancy and turn around on new tenants)
 
Actually moving away is no big deal. If the property breaks even without the rent from the unit you live in, you should be able to hire a managment company.
 
I would definitely go check out the place before you consider anything else. This could be good if the places really are in good shape and you can take care of small repairs youself. But if the places are in bad shape then you could just be buying somebody else's money pit. I would check the place out and if interested go back one evening and chat with the people currently living there and ask them what kind if problems that have with the place.

 
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