First time homebuyer, living in one side of duplex - how to calculate a good deal?

Question

Hey y'all, thanks for your time on this post! I'm looking into investing in my first duplex. What's the best way to calculate a good investment when you're living on one side and renting the other? Eventually, I would move out but still want to vet the opportunity given rates, costs of housing these days, and the like.

Any calculation advice besides the 2% and 50%?

Ty Ash · Answer

Hi @Talya Reynolds!

Go through these questions to help you on deciding if a deal makes sense for your situation:

If you're house hacking this property by renting out the rooms, will you be paying less than typical rent for your area while you live there?

Do you have the potential to force some appreciation with some projects (my favorites are carpet, paint, and flooring)?

When you move out, will you be at least breakeven when accounting for PITI and Expenses (even if you are close, this may make sense if the next question is yes)?

When you look at your BP Calculator for the deal, will you have built equity over 5 years with conservative appreciation assumptions for your market and tenants paying down your principal?

Most house hack deals will have a positive impact on your net worth even if the cash flow is close to breakeven. Plus you'll hopefully have lower expenses while you live there that can increase your savings rate for the next deal. You just need to get started and make sure you're operating with reserves so that you can keep the deal for the long term. You're BIGGEST risk is not taking advantage of a 3.5% down payment and instead waiting until later and needing to put 25% down if you're not living in your future investment.

Best of luck getting started! Here for you with any questions you have along the way!

Eliott Elias · Answer

If your tenant eliminates your mortgage it is a good deal.

Alan Asriants · Answer

Well put! Using your 3.5% FHA to buy multifamily is the best investment you can make. I try to encourage all of my younger clients and couples to buy their duplex first instead of the fancy single family. 3.5% today is cheaper than 20-25% tomorrow

Alan Asriants · Answer

Hey Talya,

I recommend looking at a few things when considering a house hack deal:

1. Are you mainly buying this as an investment, a place to live, or both?  The reason behind this question is to figure out what is most important to you. Personally if I am buying a house hack I would like to find a decent deal, but I would "sacrifice" some of my numbers in order to have a place I would actually like to live in. I understand the concept of renting out by room, but I would pay more in order to have separate units, separate entrances, and separate utilities. I would also pay more and give up some cash flow to live in a location that I prefer. For some they could forego some of these things in order to benefit from higher cash flows. Ultimately you are paying a higher price for higher quality living. Decide what is important to you

2. How much do duplexes go for in your area? Use a local agent (I can gladly recommend one in your area) or the BP calculator to have them estimate what your monthly payment would look like. Since its your first purchase, FHA is likely the best low money down option for you. Once you know your monthly payment - compare it to what you would pay if you were to rent instead. Does living in one unit and renting out the other cost the same or less than what you would rent it for? If yes, it is generally a good deal.

if you're paying the same or less on your mortgage payment as you would to rent it out, I would say go for it. Besides the fact that you own and no longer rent, you will save money on your taxes by owning the piece of RE and depreciating it/writing off renovations. Remember to consider major repairs: roof, siding, windows, HVAC, plumbing, electrical etc. Cosmetics are ok and you can do many yourself if you really want to save $$$Best of luck!

Dan Guenther · Answer

Hey @Talya Reynolds and welcome to the forums! There are a lot of different approaches to calculating a "good" investment. Since you will be house hacking, there are a separate set of factors coming into play that will drive this decision. A bad deal for a traditional investor could actually be a great deal for a new investor that is house hacking. Here are a few tips:

1) Rent savings - How much per year will you save on paying down someone else's loan vs paying down your own? Even if you aren't cash-flowing in year one, this does not necessarily mean it's a bad deal.

2) Use sites like Zillow and FB Marketplace to figure out what people in your area are paying for rent and compare those places to your target property. This should give you a good idea of what to expect in year one and also after you move out. Think long-term when looking at numbers.

3) Use the BP Calculator on this site to run the numbers. Will the rent cover a good amount of your mortgage while living there? What will the numbers look like when you can rent out both units?

4) Connect with investor-friendly realtors/lenders. They will have resources, tools, and insight for you that are specific to your market.

I could write a book but for the sake of time, my biggest recommendation is to connect with other investors close to you!

First time homebuyer, living in one side of duplex - how to calculate a good deal?

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