Buying a duplex in Venice amounts to doing extensive research in the local real estate marketplace to achieve the best deal. As a result, investors will know the median sales price of duplexes for sale in your area to help leverage a great deal.
This information can also help you make informative decisions. As we all know, investors make money when buying a property and not when they sell. These tips I will be providing today will hopefully help anyone wanting to purchase or invest in a duplex in Venice and what it takes to make the most money!
Income Producing Real Estate in Your Area
When first starting out in buying a duplex in Venice, the first step is normally researching the local market. Check out the latest active income producing listings nearby and then the recently sold. This will help you get a look at the local market to help present the best offers to potential sellers.
A duplex is specifically a two unit property with separate addresses on a single lot of land. This is also called a multifamily residential home. FHA is capable of providing loans to buyers who qualify up to 4 units – quadplexes; as long as you live in the unit yourself. The benefit of a duplex compared to a quadplex is the fact of less home to maintain and liability. Therefore, duplexes are a simple but effective tool for real estate investors to boost their monthly cash flow.
After Finding a Duplex, What’s next?
Once a property has been located, it is time to do the calculations and numbers to see if this potential duplex is worthwhile. First, let see if we can find out the Annual Gross Revenue. To do this, take the monthly rental income you think you may receive for both units and multiply it by 12 (for 12 months in the year). For example, if a property can be rented at $950 a month and there is 2 units, the annual gross revenue equals – $22,800 dollars a year. Next is to subtract projected expenses on the property.
You have to figure property taxes, insurance, fees, maintenance, etc.. In this case let’s assume expenses for the year total $15,500. To find net income for this property, the next step is to subtract expenses from gross revenue. $22,800 – $15,500 is $7,300 potential net income after expenses. This example will bring the investors potentially $600 dollars a month in net cash flow.
So even though $600 seems great to be receiving every month, what else can we calculate to figure out if this property is worthwhile? To do this, we can figure out the cash on cash return. Let’s assume the duplex above was sold to the investor for $215k. At a 20% investment down payment that is around $45k cash down for the investor to take control of this duplex. If this property returns you $7,300 and you have $45k invested, your cash on cash return for the year is 16%. Pretty good. And this is even before appreciation is accounted for.
Account for the Duplex Appreciation (or Depreciation)
With real estate, even if the market tumbles, history shows rental prices only slightly decrease before raising to newer highs. Therefore, at worst case scenario the property can be zero but still produce monthly income. If this happens investors simply hold until prices bounce back. Now good news is, prices on average will continue to rise.
So if you purchase this duplex above at $215k, and in 2 years it is worth $250k, well after closings costs you can see a great return if the duplex property values continue to rise. That is around a $35k extra cash return on the original $45k accounting for cash flow. So in just 2 years it seems possible to see a 100% return on investment before taxes on this Venice duplex property example.
Other Benefits of Buying a Duplex
A few other benefits come to mind when buying a duplex in Venice. You can instantly get equity if you purchase the property undervalue which is great. You can then use this equity and use it to leverage for another duplex! This is why researching the market can save you thousands as your knowledge in the market will help you see the true ebb and flow of the market to pick up the best deal in town.
Another benefit of buying a duplex is the fact you can purchase the property in a business name and you lease it out to yourself and rent out the other side so that all rental expenses can be business expenses and tax write offs. This can also separate personal liability and shield your personal assets from potential lawsuits.
One last benefit of buying a duplex is when applying for a loan, they will account for rental income to add to your tax returns. Some lenders will calculate only 40% of the income can be used to add to your annual income your make. For instance, if you can only get approved for a loan up $200k for a single family home, maybe with accounting for the potential rental income, the lender will then be able to approve you for the duplex at $215k. It is a great thing that comes with a duplex that buyers even with FHA can harness to get.
Investing or buying a duplex in Venice is a risky investment at its core. However, with this risk comes great rewards. And history shows if real estate prices tumble, they will likely bounce back. This is good for those who want to buy or sell without losing their whole investment.
However, real estate investing carries the risk of losing all or even more money you invested with, so be sure to consult all professional investing/consulting advice before starting. These tips can only guide you and shouldn’t be used as professional investing advice. This is information from what I have gathered and seen firsthand.
Do you have any tips to help with real estate investing? Let us know below. Be sure to stay updated to our monthly exclusive newsletter for more local real estate news and information!
Call Jeramie deBerard, Realtor®