Your First Income Property

We recently had the opportunity of working with some first time home buyers who decided to purchase an income property as a first home.  They purchased a duplex to live in one half and rent out the other half. Their goal was to own their home while at the same time making a great long term investment.

This was an exciting experience for me, because this is exactly how I started in real estate 11 years ago. I was a clueless 23 year old at the time, and I just jumped into the market without much knowledge. Sure, I had read a few books and I knew income property was a good long term investment. However, I had no clue what I was doing as far as landlording, or making sure the property was a good investment. When I first bought, it was a seller’s market, and I overpaid for the property (knowing what I know now). Although, it still turned out to be a good investment.

Our recent buyers had done a lot of research, and had more knowledge than I had when I started. Even so, I had the opportunity to mentor them, let them learn from my mistakes, pass along some landlording knowledge, and help them find the right property for starting their real estate investing careers. These buyers also had the opportunity of buying in the best investors/buyer’s market in years (I’m a little jealous that I couldn’t start fresh in this market).

One challenge we ran into was finding the right balance for them. A lot of the properties that cashflow extremely well are in neighborhoods where they didn’t necessarily want to live. While a lot of the properties in really prime neighborhoods, wouldn’t even come close to cashflowing.  So we had to compromise a little cashflow for a better neighborhood. That’s okay though, because the property they ended up with, we’ll be much easier to manage as a first time landlord than some others.

I want to show you how their first investment will work out. They purchased a duplex for $210,000, which at the peak of the market was probably a $275,000 duplex. This duplex is in a great neighborhood, and in a great school district. They buyers will be living in the vacant side while the occupied side will be bringing in $920/month (which is less than market rent).  The buyers put about 15% down on the property, so their mortgage payment will be about $1370 with principal, interest and taxes. Subtracting the rental income from the mortgage payment leaves them with $450 per month to pay out of their own pockets to live there (plus any maintenance expenses). This is way cheaper than renting a comparable property!

To make this deal even better for them, let’s look 2 or 3 years down the road (they don’t plan on living there much longer than that). This property is currently rented below market value to a long term tenant. So, the buyers have the opportunity to increase rent. The duplex also has completely unfinished basements that can be finished off to add a bedroom, a bathroom, and another entertaining space or family room. With some work, this property could potentially rent for $1250 per side. If these buyers do a few upgrades, up the rent, and move out in a few years, they could potentially be profiting $1130 per month (less any maintenance and repair expenses).  I only wish I could have been in this position a few years after my first real estate investments.

What a great opportunity this market is for prospective buyers and investors! If you’re considering investing, don’t just sit back and watch. Take advantage of the opportunities that are out there now.

Related post: Build Wealth and Passive Income With Rental Properties

2 responses to “Your First Income Property”

  1. Great illustration. The cashflow is wonderful, and another benefit to them owning this duplex is the significant tax advantage they will realize as a result. Great Buy!


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