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Don’t forget the 2-families

In the hot real estate market of the early to mid 2000’s, duplexes were virtually ignored by investors looking for rental properties. And with good reason. Why would anyone buy a property if they couldn’t make it cash flow. With the upward spiral prices took in that market, 2-families were generally abandoned by rental investors and embraced only by owner-occupants.

Flash forward to 2008 and you have a much different situation. As foreclosures continue to pile onto the market and values continue to fall, these long unnoticed investment opportunities are beginning to look a little more appealing. Duplexes located in all areas and in all conditions are beginning to pop onto the market at an rapid rate. The prices have gotten so reasonable that cash flowing these buildings has become the rule rather than the exception.

I’ve been surprised at the number of duplexes I have been finding in the St. Louis market that already have a ton of work done to them, yet are for sale at a very reasonable price. Central heating and cooling, new stacks, updated kitchens and bathrooms, clean drywall finishes: these are common finds among the foreclosures flooding the market.

One of my clients closed on a 2-family in the Shaw Neighborhood last week that is a prime example of the great buys that are out there. This duplex has central HVAC, a newer stack, circuit breakers, intact copper, spacious two and three bedroom units and is really in great shape. He’s going to have to put some work into it, but it won’t exceed $15,000. Once he’s done he’ll be able to rent each unit for about $750 for a gross income of $1500 a month. The real kicker is that we negotiated the purchase price down to only $79,000. That’s only a $94,000 total investment after repairs. Not a bad cash flow. Especially for Shaw.

Another point to consider when looking a 2-families is that in the existing financing market of 20% down deals, finding 20% of $79,000 for one of these duplexes is a lot easier than finding money for a down payment on a high dollar 4-family. These deals are often more affordable and quicker to get turned around.

Of course, I am not saying that all duplexes are good deals or that you aren’t better off investing in some other style of multi-family. The real point I am trying to drive home is that you should pay these opportunities some attention. Keep you options open and you just might find one of these “diamonds in the rough.”

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Matt Kastner

Matt Kastner is an Investment Real Estate Consultant at St. Louis Real Estate Society in St. Louis, Missouri. He is also develops properties on the side through Threshold Properties. When he isn’t representing investors in the purchase or sale of multifamily properties, rehabs, foreclosures and other income producing properties, he is often taking on rehab projects himself. He lives in South St. Louis and has been in the real estate business since 2004.

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