{"id":138201,"date":"2020-12-09T16:26:40","date_gmt":"2020-12-09T23:26:40","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/cash-flowing-duplexes"},"modified":"2024-02-07T18:37:04","modified_gmt":"2024-02-08T01:37:04","slug":"cash-flowing-duplexes","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/cash-flowing-duplexes","title":{"rendered":"Our Top 5 Markets for Cash-Flowing Duplexes: December 2020 Markets of the Month"},"content":{"rendered":"

House hacking is one of my favorite strategies for newbie investors. It offers big upsides and favorable financing options and gives new landlords an easy first property management experience.<\/p>\n

You can structure a house hack a few different ways, but for first-timers, I recommend buying a small multifamily property with two to four units. For the purposes of this article, we\u2019re going to focus specifically on duplexes.<\/p>\n

Best of all? If you have $20,000 to invest, you can start right away. Below are five cities where you can buy a duplex with great cashflow potential for under $20,000.<\/p>\n

Why $20,000?<\/h2>\n

Before I outline my market selection criteria\u2014and the markets themselves\u2014I want to explain why I chose $20,000 as the minimum investment.<\/p>\n

First: In order to purchase a duplex for under $20,000, it must be an owner-occupied purchase. That means, you, the investor, must live in the duplex. Why? This strategy involves using an FHA loan<\/a>, which requires as little as 3.5% down. In order to qualify for an FHA loan, you must occupy the property \u2013 but luckily for aspiring house hackers everywhere, FHA loans include properties with up to four units (so you can even use this strategy for a triplex or quadplex too).<\/p>\n

Let\u2019s say you\u2019re eyeing a duplex listed for $200,000. You secure an FHA loan, which requires that you put 3.5% down\u2014or $7,000. Your closing costs will likely be around $5,000, and you should keep about $5,000 in reserves for maintenance and repairs. In this scenario, you\u2019d bring $17,000 to this deal and secure yourself a duplex. Live in one half and rent out the other half\u2014house hacking at its finest.<\/p>\n

I should mention that putting less than 20% down on a property often entails private mortgage insurance (PMI). This is an additional fee on top of your normal mortgage payment. Of course, no one wants to pay extra fees, but many great deals have been built on mortgages with PMI \u2013 and it offers a great way to get started in real estate.<\/p>\n

How I picked the markets<\/h2>\n

Next, let\u2019s go over the criteria used to select my top five markets:<\/p>\n

Quantity <\/strong><\/h3>\n

First and foremost, I looked for cities with a sufficient supply of duplexes on the market for around or under $200,000. Each of the cities on the list below has at least 80 affordable duplexes on the market today\u2014and some have more than 350.<\/p>\n

Price<\/h3>\n

Because early-stage investors are price-limited, I searched for markets where duplex investors could bring between $10,000 and 20,000 in cash to the closing table.<\/p>\n

Rent-to-price ratio<\/h3>\n

I used a rent-to-price (RTP) ratio to identify markets with high cash flow potential. As a refresher, a RTP ratio above 0.5% is solid and anything above 1% is excellent. All of the markets on this last have an RTP of 1.3% or better\u2014that\u2019s elite-level return potential.<\/p>\n

The rent estimates here are projections I personally derived using BPInsights data. Basically, I determined how many bedrooms the average duplex contained and then combined data for different-size apartments for a rent estimate. As an example, if duplexes in New Haven, CT, have an average of 4.8 bedrooms, I added the median prices of a two-bedroom and three-bedroom units together and then did some minor adjustments to account for the fact that the \u201caverage duplex\u201d has fractions of a bedroom. Et voil\u00e0<\/em>, we have estimated rents.<\/p>\n

The top five markets for cash-flowing duplexes<\/h2>\n

Before we dive into the markets, one last caveat. The metrics listed above are not comprehensive. If you are seriously considering investing in any of the markets below, you must do your due diligence! Examine population changes, appreciation, employments trends, and much more.<\/p>\n

This list provides a short-list of markets with high potential. You have to figure out what market and what deal is right for you.<\/p>\n

First, the data.<\/p>\n