The expression “can’t see the forest for the trees” helps describe many investors problem when seeing a true investment opportunity. You can work out details and numbers, but sometimes you need to see the potential and overall picture.
Real Estate is an asset class, like gold, like stocks, like anything bought, sold, and traded, and not everything is able to be quantified and analyzed at the time of the sale. Sometimes you need to forecast, predict, and have a general sense of the market.
A deal today may never come around again at the same level on a particular property, and yes there will always be properties and opportunities, but if you are experienced enough to have a feel of the market, then sometimes you must trust your intuition and act. The details and due diligence are great traits of a good investor but so is decisive action on a deal that you know is right.
It is a balancing act this risk vs reward thing, but action trumps indecision, and without risk there is no reward, so when sizing up a possible real estate investment, the tree can provide a great indication but if the opportunity is within the forest, and you lose sight of the overall picture, the overall deal and opportunity will pass you by.
Duplexes are great investments, and provide great opportunity, but its not a stand alone asset, the timing, the deal over the next 2 years, 5 years, 10 years, factor into that opportunity. If you see and predict changes in an area, the dynamics of renter behavior in the region, the rise of demand, etc…, that ability help serves you in your quest for the right mix of properties for your future.
If you are new to duplex investing and wondering how to “time” the market, a good and simple reminder is that a deal is a deal if the numbers make sense. The biggest variable to understand is the context of your numbers. What was wholesale before may be retail value now. The great thing about “deals” is if you buy something at a true deal price level you are protected with margins no matter how things fluctuate.
Know your market, know your numbers in the right context, do your due diligence, and have courage. You are smarter than you think. Fear is good, it makes you think about the numbers. But after you do your homework and the numbers make sense, have some courage. If it is truly a deal, then you are probably hedged nicely.
A handy little calculation for the duplex investor is the rule of 72s. The rule of 72s calculates the amount of years it will take to double the value on an investment duplex at a certain appreciation rate.
To do this, you simply need to plug-in the appreciate rate rounded to the nearest whole number into 72 and that will tell you how many years it will take a duplex property to double in value.
You purchase a duplex for $150k and has an appreciation rate of 9%.
72 / 9% appreciation rate = 8 Years
It would take a $150k duplex 8 years at a 9% appreciation rate for that investment duplex to be valued at $300k.
This is a quick and handy way to see how the appreciation rate relates to your investment duplex.
Unlike single residence real estate, duplexes add more options. Yes there is only one more unit but there are several scenarios. They include 4 scenarios:
- Living in one side, and having one tenant.
- Living in one side, and having a vacancy.
- Having two tenants.
- Having double vacancy.
This may seem like a simplistic break-down of duplex usage but we will look at these scenarios and the different variables in future posts.