Purchasing Duplex for Long Term Rental Income - Posted by Todd Fogal

Posted by Frank Chin on July 14, 2002 at 08:21:46:

Hi Todd:

I stood in the shoes of a seller, and seriously considered offering 100% financing for a property I was selling. I was told to hold firm on SOME form of down payment for two reasons:

1- A buyer could conceivably NOT make any payments, live rent free for a year, and then move. In many states, its more difficult to foreclose than it is to evict.

2- If I plan to sell the note, it is virtually impossible to sell it if there’s no down payment involved.

In view of this, I was ADAMANT on selling it with some down payment or continuing renting it, as I would rather evict than foreclose.

It looks like its a home you would LOVE TO live in. And if you can get into it using a low interest credit card, with no qualifying owner financing, it is in effect no money down.

Remember, many banks will NOT CONSIDER money from a credit card a legitimate source of down payment, as they would only consider seasoned funds. You can do this with seller financing.

If you MUST go for no down, you have the option of skipping this, and keep looking, and concentrate only on motivated sellers.

I was NOT a motivated seller. The key in the RE business is to look for motivated sellers, but avoid being one yourself.

Frank Chin

Purchasing Duplex for Long Term Rental Income - Posted by Todd Fogal

Posted by Todd Fogal on July 14, 2002 at 01:31:08:

After having purchased and studying Carlton’s program I find myself about to close on a Duplex that really is not under market, but is a beautiful property. The location, condition, amenities, etc, seem to be in line, or above average for the area where the duplex is located. One unit is rented presently, and the other is newly remodeled and frankly, I’d live in it myself. The seller is adament about getting $5000 down, and they will carry the note at 10% for 15 years. Based on the rental income from both units I will have a positive cash flow of over $200/month after I pay off the $5000 that I was going to borrow on a low interest credit card. (I plan to pay off the $5000 in 30 months which only leaves me about $50/month positive cash flow for the first year and a half.)

I’m just wondering what the pitfalls are here. I have excellent credit so borrowing the down payment is not a problem. My problem is coming up with cash after the stock market downturn the past two years…

My goal here is long term equity build-up and retirement income rather than flipping for a quick profit. I’d love to be retired in the next 15 years, or sooner. Also, this is my first rental property.

Any advice appreciated.

Re: Purchasing Duplex for Long Term Rental Income - Posted by wpage

Posted by wpage on July 16, 2002 at 12:15:46:

Todd You don’t say what the price of the property would be or if the home needs any repairs? The interest rate of 10% seems high but you are getting owner financing in exchange with no qualifying. Using a credit card for your down payment is not always the best way to get cash but if it is the only way to make it work then you have no choice. You will have no cash flow now but will self liquidate the credit card over a short period of time which is basically building equity. Just be careful that you can afford all of the payments without being squeezed on the budget.You will also have tax advantages and an asset which will greatly help your credit rating. I would go for it. good luck

Re: Purchasing Duplex for Long Term Rental Income - Posted by Nyke

Posted by Nyke on July 14, 2002 at 23:48:41:

That deal doesn’t sound to good to me. Have you ever owned a rental? If you have you would understand that $50 a month is not a good cash flow. I would concentrate on finding better deals. Look at a lot of properties before you settle on one. Look for the motivation in the seller rather than the prettiness of the property. Remember as an “good” investor you should never pay retail prices for a property. Trust me on that one. There are good deals out there just keep looking. Look at 100 before you settle on one to gain experience. Also don’t settle on a cash flow of $50.00 a month. That is not good. Think about if you have to make unexpected repairs or vacancies. The point is you shouldn’t have to wait 15 years before you start to make money. A profit is made when you buy not when you sell, remember that. I hope this helps.

Re: Purchasing Duplex for Long Term Rental Income - Posted by Scott Ewing S.W. Mich

Posted by Scott Ewing S.W. Mich on July 14, 2002 at 10:23:37:

Having a down payment will also make it easier to put something in your schedule E’s when you file income taxes. If you do live in the one half, would that put any undue strain on your budget? Just asking. Also if you do end up living there, keep arms length form your tenant. My #1 policy “Don’t rent to friends or relatives” Good investing Scott