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No one wants to lose $872 per month in cash flow. That bad right?
Well, let talk more about that.
Potential income, I estimated, would be around $2100 per month if all 3 units were rented.
To sum up the advantages: If Jake needs to live somewhere anyways, and he can live in this home for significantly cheaper than living elsewhere, and he can take advantage of a rising real estate market with minimal cost out of pocket (and he can learn how to be a landlord while doing it) it not necessarily a terrible decision.
Should I Buy This Triplex
The green line represents how much equity Jake would have (assuming he starts with $50,000 in equity because he got his $200,000 offer accepted) over $200,000 in equity by year 15.
Today I received a private message from a BiggerPockets colleague (we call him Jake) that asked a very good question about a potential property he was looking at. Rather than try to summarize, let me just show you the message:
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I think this depends on what Jake iscurrently paying in his real estate Nike Mens Down Jacket
market to live. If the average home would cost him $2,500 per month to live well, $872 is a whole lot less than $2,500 so it might not be such a bad idea.
Now, personally, appreciation is NOT my game. I don invest for appreciation, and don generally recommend new investors do it either. However, it is a strategy that has worked for many people in the past so I need to at least bring it up.
I wrote out a rather lengthy response and then decided this would make a really good discussion here on the blog. So follow along with me as I analyze this potential property and show you how I look at something like this.
This Purchase Be a Good Idea?
When investing in real estate, you can rely on just gut feeling. This is a math game, and it has to begin there. After a few minutes of looking at the numbers, I could quickly see this wasn looking pretty.
This shows a potential negative monthly cash flow of $232 per month. This should be enough to stop most investors, but just for the heck of it, let explore the issue a little deeper. In the following screenshot, I ranthe numbers as if the main house unit was being lived in by Jake, so we could see what it would actually cost to live in the property:
way, you can compare apples to apples. Also, an investor isn gonna live here forever, and it WILL become a rental soon enough.
Whenever analyzing a live in Nike Sweater Dri Fit multifamily property, I always run the numbers AS IF I were renting all the units out. This Nike Dri Fit Sports Bra
As you can see, if Jake were to live in the property, he could expect $872 per month. What this means is that it would cost Jake roughly $872 per month to live in this home (plus his own utility payments.)
To make things easy, I headed to the Rental Property Calculator here on BiggerPockets. I use this thing every single day to analyze potential deals, and it hasn let me down yet.
A second reason it may be advantageous to purchase this triplex is for appreciation. After all, check out the graph below, which also came from the Rental Property Calculator, that shows what 2% per year appreciation would look like over time.
Potential expenses, I estimated, would be around $2332 per month.
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