Duplex House Hacking Help
Total Realestate noob here. I'm 27 and currently on deployment. Before leaving on deployment my wife and I sold our house and she moved in with my parents. We currently have no debt and are trying to figure out what to do when I get home. A couple days ago she found a duplex for sale in Russellville Arkansas. It's listed for 295k, it was just built last year and rents for 900. She wants to live in one unit and rent the other. I do believe we could raise the rent to 1000 or or 1100 but even so I just can't make the numbers make sense to me. I'm not totally against the idea of getting into Realestate investing, I would just like some guidance from someone with experience to help me understand if this is a terrible deal. I will be able to use a VA loan so we could put 0 down, we would also be able to put up to 65k down. Really just looking for general advice on the situation. I don't want to buy a SFH yet because with our careers I don't know if we will stay in the area for more than a couple years. I do want to live there long term though.
Edit: I forgot to mention the duplex is 3000 square feet so 1500 per side. Also has a garage for each unit. So it’s selling for less than 100 per square foot.
@Dustin Powell - with it being a new build it doesn't sound as though there is any value add there to capture; meaning your equity growth is going to be solely based on natural price appreciation and what you paydown in principal. Also, with a $295K purchase price at current interest rates, $1k monthly rent is not a great yield ((1000*12)/295000)). 10% is a pretty safe benchmark but varies based on your location. If you do plan on keeping the property long term, at a minimum the property should cashflow relative to its PITI and expenses when fully rented. From an investing standpoint, it doesn't sound fantastic.
This is a complicated question with an even more complicated answer, but here is a bit of my journey.
My husband and I currently owner occupy a duplex in Michigan. When we ran the numbers, I ran them as if I would not live here. With that being said, there ARE advantages to owner occupancy that the standard calculators do not factor. We still looked at getting a minimum of .5% of the purchase price back in rent from the one side. (1% + if both sides were rented out vs us living in one)
I'm not familiar w/ your market, but even getting 1100/unit ($2200 total), that puts you at .745%. Here are some questions I would ask myself:
1. The first question I would ask is what will the home cost? Even with a VA loan, you need to know what current rates are, property tax rate, etc. Property taxes are incredibly high in Michigan, so we now require a higher percentage than 1% of the purchase price in rents.
A quick google search of the property tax rate there, and a calculator here on bigger pockets, here's what I very loosely estimated:
https://www.biggerpockets.com/...
Purchase price: $295,000 ($1864.60 / month @ 6.5%)
Interest Rate: 6.5% * This will probably be higher because it's an investment property, even if you owner occupy and is an important thing to figure out before making any decisions.
Annual Taxes: $2745 (Russellville has a millage rate of 46.5 on 20% of the fair market value)
Annual Insurance: $1200 ( I just used what I pay annually - I always get a quote for my calculations)
Monthly Total: $2193.35 - the calculator does not factor in PMI insurance if you're LTV is less than 80% either.
At that rate, $2200 a month would BARELY cover those numbers if/when you leave (that also isn't including PMI), and does not leave any money left over for repairs, turnover, property management etc.
2. Are there added benefits to occupying the duplex vs a single family home. In Michigan, purchasing the duplex was only approximately 40k more than purchasing a single family home comparable in size to the unit we're currently living in. By purchasing the duplex instead, one side covers the mortgage, eliminating the majority of the housing costs we would have in a single family home, helping eliminate the need for me to sell my time to an employer.
3. If there is added benefits compared to purchasing a single family home, will you be there long enough for those benefits to come to full fruition? If you may be gone in a year or two, I can't imagine it would.
4. If you still really want to try for the property, but the numbers don't work as is, what number DOES work? This is a negotiation after all - find out what number you ARE comfortable with, come to the table with that data, and ask for what you want. I would advise you to know your hard numbers first so you don't get caught up in the fervor of the negotiations.
Hello Dustin, the best way to evaluate a house hack is to look at it as if you were not living there and instead the whole unit was filled with tenants. At $285k with 0% down VA loan assuming 7% interest, your monthly payment would be roughly $1900 a month. Adding in some money for vacancy/repairs/capex, utilities, and lawn care, we will assume that your monthly expenses in total come to about $2400 a month. If both units were rented at 1100 you would still be in the negative by 200 a month at least. If I were you I would look for something that would have at least 10% cash on cash return after you move.
I do think that house hacking is the best option for you (as opposed to renting). Do you think you could find a better deal in your market? Have you looked into properties that have an ADU or separate finished basement apartment. With these types of properties you can often get all of the benefits of a house hack without the inflated prices that normally come with duplexes/triplexes/quadplexes.
Another option for you could be to purchase a single family home with 0% down VA loan and build an ADU, finish a basement, or do a garage conversion into an ADU with the capital that you have to deploy.
Lastly, have you considered doing a short term rental for the other unit instead of a LTR? This would likely generate enough cashflow for you to be positive but would require more active work on your end.
Feel free to reach out if you have any more questions!
Hey Dustin! I know the property you are referring to! When it comes to house hacking, you have to start with what you are wanting to achieve long term. While you are occupying it, the cash flow may not matter as much since you are just looking for a subsidized mortgage payment. However, eventually you will move out and you want to make sure the property will make sense as a pure investment.
Good luck with your decision!!
Quote from @Dustin Powell:
Total Realestate noob here. I'm 27 and currently on deployment. Before leaving on deployment my wife and I sold our house and she moved in with my parents. We currently have no debt and are trying to figure out what to do when I get home. A couple days ago she found a duplex for sale in Russellville Arkansas. It's listed for 295k, it was just built last year and rents for 900. She wants to live in one unit and rent the other. I do believe we could raise the rent to 1000 or or 1100 but even so I just can't make the numbers make sense to me. I'm not totally against the idea of getting into Realestate investing, I would just like some guidance from someone with experience to help me understand if this is a terrible deal. I will be able to use a VA loan so we could put 0 down, we would also be able to put up to 65k down. Really just looking for general advice on the situation. I don't want to buy a SFH yet because with our careers I don't know if we will stay in the area for more than a couple years. I do want to live there long term though.
Edit: I forgot to mention the duplex is 3000 square feet so 1500 per side. Also has a garage for each unit. So it’s selling for less than 100 per square foot.
Hi Dustin,
I love how you and your wife are thinking outside the box. Also, thank you for your service! I would start to run numbers on a lot of different places. https://www.calculator.net/ren...I like to use this calculator. When I was starting everyone discouraged me and said why not just rent? I was determined though. I would keep looking and searching. I mean you already have one of the best loans out there and I am pretty sure you can use it every few years so I would start now so you can keep that ball rolling.
Find a realtor in your area that works with investments and has off-market deals. Our brokerage here in Ohio makes sure all of our realtors are cold-calling daily. Keep analyzing and looking. The more you do the more you will know when a good deal comes.
Quote from @Steven Foster Wilson:
Quote from @Dustin Powell:
Total Realestate noob here. I'm 27 and currently on deployment. Before leaving on deployment my wife and I sold our house and she moved in with my parents. We currently have no debt and are trying to figure out what to do when I get home. A couple days ago she found a duplex for sale in Russellville Arkansas. It's listed for 295k, it was just built last year and rents for 900. She wants to live in one unit and rent the other. I do believe we could raise the rent to 1000 or or 1100 but even so I just can't make the numbers make sense to me. I'm not totally against the idea of getting into Realestate investing, I would just like some guidance from someone with experience to help me understand if this is a terrible deal. I will be able to use a VA loan so we could put 0 down, we would also be able to put up to 65k down. Really just looking for general advice on the situation. I don't want to buy a SFH yet because with our careers I don't know if we will stay in the area for more than a couple years. I do want to live there long term though.
Edit: I forgot to mention the duplex is 3000 square feet so 1500 per side. Also has a garage for each unit. So it’s selling for less than 100 per square foot.
Hi Dustin,
I love how you and your wife are thinking outside the box. Also, thank you for your service! I would start to run numbers on a lot of different places. https://www.calculator.net/ren...I like to use this calculator. When I was starting everyone discouraged me and said why not just rent? I was determined though. I would keep looking and searching. I mean you already have one of the best loans out there and I am pretty sure you can use it every few years so I would start now so you can keep that ball rolling.
Find a realtor in your area that works with investments and has off-market deals. Our brokerage here in Ohio makes sure all of our realtors are cold-calling daily. Keep analyzing and looking. The more you do the more you will know when a good deal comes.
I second that calculator - it's the one we use to analyze our deals! https://www.calculator.net/ren...
You can really see how changing the down payment, adding a property manager, property taxes etc can all change that bottom line.
It's great for determining what purchase price will work for us if the currently listed/asking price does not.
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#2 Managing Your Property Contributor
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@Dustin Powell you're making the common mistake of paying retail for an investment property.
Most won't cashflow this way for 3-5 years.
If you're serious about RE investing you should start listening to the podcasts and trainsings on this site.
@Dustin Powell since you have access to a potential 0% down loan and you have some cash I would try to find a duplex or triplex that you could then use your funds to add an extra apartment too. This should increase the value beyond what you put into it and hopefully cash flow. Well after you move out.
A lot of great comments on here from everyone and shocking to see that everyone seems to be trying to help.
The problem is that most people are giving you advice 'they' would follow or that they deem as good. Nothing wrong with that, but these suggestions are not taking into account your wants and needs, your goals short and long term, your fears and concerns, your resources or lack of resources.
My advice is for you to get referrals to Realtors that are doing great things for their clients (how do you find those you ask?) well, look at reviews, experience, know how, and who you click with. Once you get 2 to 5 realtors in the town you want to buy in, then talk to them and commit to the best one. Someone that understands your needs and puts you and your family first, not their commission...
A good realtor will have a team of professionals behind them that are equally great! You will have a chance to interview them also and choose to work with the 'team' or not.
A great Realtor will be able to ask you the right questions and guide you along the way. They will do numbers for you to see what makes sense or doesn't based on your goals (when it comes to CoC returns, ROI, House hacking or Brrrr homes) etc
Every person is unique and every person's financial Resume is different. Books are great, podcasts, and other investors also. Great comments and suggestions on here, but too much info sometimes that overwhelms people.
These conversations should also include a Lender, an accountant or tax professional and even a Real Estate attorney. You want to be pro-active so that you are not caught off guard later! While not suffering from analysis paralysis.
My wraps up advice :
Take 1 to 4 weeks researching the market while interviewing and talking to the professionals mentioned above.
Get your family pre-approved if you haven't already to know your buying power.
Make a 1 to 3 month plan with the realtor you commit to and understand exactly what kind of asset is best for you.
By the way: many investors have successfully started with :
1. A condo
2. Single family home
3. Duplex or multi- family (residential 1-4 units)
4. Fixers
5. New construction
Each one is ok, each one can grow to be a great investment and there is strategy to which one to buy first! Why?
your Realtor will let you know! :)
Let me know if you need a referral to a Realtor or Lender for any state in the US.
Good luck and hope this helps
Sebastian
Investor advisor : Los Angeles County