Zillow real estate investment writer and long-term
Investing in Duplex vs. SFR
Joshua of Florida asks:
I originally was looking into buying duplexes as I currently rent an apartment and would move into one side and rent out the other to get my feet wet in the rental business. However, I ran into an issue and wondered if you have any insight regarding this. Finding duplexes with positive cash flow has been difficult as most of them are owned by other investors who overprice them when selling. Is there any opportunity to pick one up that cash flows or is it better to shift my efforts into getting a single family home?
Answer: Hi Joshua, I’m glad that you at least know how to pencil out a real estate deal to check the property’s cash flow. Most investors have no idea how to do this and buy negative cash flow properties which are not good investments. It can take years, if ever, for them to figure out what a mistake they’ve made.
On your question about it being hard to find a good cash flow deal. Yes, you are correct, it is hard to find a good real estate deal. With multi-family real estate in particular, I see many buyers who buy because they want to boast about their owning a multi-family property - and again many can’t pencil out a deal to figure out how to avoid poor quality investments. Realizing they must buy to be able to boast, these folks drive up the price in bidding wars, which drives down their cash flows and investment returns. In the end, these individuals end up overpaying for rental property investment, in my opinion.
So Joshua, welcome to real estate!
Your best bet is to pencil out each and every real estate deal you consider until you hopefully find one that makes sense for you. If you can’t find a fair deal, you might just stick with investing your monies in a well diversified portfolio of stock mutual funds. Many people do quite well avoiding real estate investments by just gaining some basic financial guidance from a C.F.A. or C.F.P. or other investment advisor.
Buying Title Insurance for the Buyer
Mark N of Sacramento asks:
I am selling a property and wanted to know if it is required to buy a title insurance policy for the buyer? They are a lot of money and I know there are no title issues because I inherited the property from my grandmother who owned it for 50 years and her father owned it before that. I appreciate any insights.
Answer: No, you are not required to buy title insurance for the buyer of your property. In fact, there is no requirement that the buyer even get a title insurance policy if they are paying cash. But, a lender would require them to get a policy if they were taking out a mortgage on the property. However, I would consider it quite foolish for any buyer to fail to procure a policy for him or herself.
Title insurance looks at the past chain of ownership, any liens, easements, encumbrances and alerts a buyer in writing to these issues. Some of these items could be very expensive for a buyer to resolve if they don’t have a policy in place, or the item was excluded from coverage in the policy by the title insurance issuer.
Back to your question on if you have to pay for the policy. It is customary in most areas of California that the seller buy an “owner’s policy” for the buyer. However, it is 100% negotiable between the parties to the contract. If you don’t want to buy one for the buyer, just write it out of the contract, although this would be very uncommon. In that case, the buyer’s price will probably reflect the fact that they have to pay for their own policy, so you’re probably really going to have to share in the cost regardless.
To protect yourself by notifying them of title issues in writing – even though the buyer probably won’t read the information provided in the policy, abstract and exclusions - it’s probably best to ensure they get a title policy regardless of who pays the bill. Good luck.
Related:
- Top 10 Real Estate Investor Mistakes
- 3 Things That Make the Best Real Estate Investment
- Rental Property Investing 101
Leonard Baron, MBA, CPA, is Zillow’s real estate investment writer, a San Diego University lecturer and real estate due diligence expert. As America’s Real Estate Professor®, his unbiased, neutral and inexpensive “Real Estate Ownership, Investment and Due Diligence 101” textbook teaches real estate owners how to make smart and safe purchase decisions.
Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.
