INVESTING IN REAL ESTATE
INVESTING IN REAL ESTATE
What's a good deal?
Every real estate investment is all about the exit strategy. Are you going to sell it or keep it? Let’s say you’re keeping it. You found a duplex that seems like a decent deal.
Ok, look at the cost to have that asset in the end and then work backward from there. Sale price is 125k.
Let’s say both units are empty for simplicity’s sake. Both 2 bed/1 bath units. The exit plan is structured like this – what will my gross rents be in the end and how much will it cost me for the final loan, maintenance, vacancy rate, management fee, utilities and anything else in my name related to the property? 2 bed/1 bath units in average condition might rent for 1200/month. That’s 2400/month gross rents. Go to a loan calculator at current interest rates (~6.5%) @ 30 year amortization. 200k loan is 1264.
One rule of thumb that I use is that the mortgage payment should be 1/2 of the gross rents (2% rule). This tells me that a 200k loan is about the cap for our exit strategy. Can you buy this 125k duplex and get it to the quality needed to rent both 2 bed/1 bath units out for 1200/mo?
What you need:
1. Rehab budget
2. Factor in closing costs (when you buy it and when you refinance it)
3. A good lender
4. Management company (unless you are self-managing – good luck!)
5. How long will the project take (aka holding costs)?
6. Who will do it? (aka contractor)
7. What team of people do you need? (general contractor, agent, insurance agent, lender, miscellaneous sub contractors).
8. What amount down do I have to pay and does the loan have construction funds or is that out of pocket?
How it could work:
125k purchase
10K closing costs
40K rehab budget
10k holding costs
10k refinance closing costs
=> 195k total into the project. Find the lender to do the 200k loan based on the new ARV (after-repair value) of 275k (you want the loan-to-value to be 70-75%) and BAM, you got yourself a duplex, refinanced at 200k loan and all your money back!
The Bottom Line
A good deal isn’t just about the price tag—it’s about the plan.
If you can buy, rehab, and refinance within a number that keeps your monthly loan below 50% of gross rent, you’re setting yourself up for long-term success. That’s the difference between a “cheap” deal and a smart one.
Thinking about getting into investment properties or expanding your portfolio? We can help you find, analyze, and connect with the team to make it happen.
Looking to invest? Let’s talk real estate strategy. Your next deal might be closer than you think!
Written by Kevin Spivey – Owner, Managing Broker, and Local Real Estate Investor