So a lot of people are telling me that a great way to start investing and practice land lording is to own a duplex and rent the other half out but people are making it seem like you can get free rent out of doing so... I don't understand how this works or why someone would agree to pay under those conditions, can someone spell it out for me?
not necessarily free rent; but you would live for free. I think one of the words used to describe this is house hacking . One of the recent podcasts featured a guy that does this all the time. Basically it works like this . Find a duplex (MLS, agent, word of mouth, driving for dollars) . If you purchase right , and put enough down. the rent from one side of the duplex should cover your PO&I portion of your mortgage payments, sometimes even the Taxes and insurance as well. therefore you live for free while your renter covers your mortgage payment. there is risk involved, like paying for repairs and capitol expenses, and vacancies when the renter moves out.
Q: I like the concept of MFH investing, where should I start?
1. Eliminate your rent/mortgage payment
2. Bring all deals to the BP community (and be humble when doing so)
3. Stick to the returns you want
Learn everything you can about multi family investing. Every day you should answer a few questions and write down several new ones.
The general theory is that you need to drive costs out of your life and/or add new revenue. If you live with your parents, and they don't charge you rent, good. I'd then start forcing yourself to put $500-700 away each month as a "rental" payment towards some real estate.
If you pay rent of any kind, to your folks or to another landlord, find a way to eliminate it from your life. My suggestion is to find a 3 or 4 family property that you can purchase. FHA loans are a good way to go, but be wary of the additional percentage points you have to pay each month as PMI. Homepath loans are great as they have no PMI. VA loans are even better, but require you to have served in the US military.
Run every deal you find through the BP community. Some of the responses are harsh, but they are eye opening. There are people on this site that have been buying and selling 4x as long as I have. When I find answers to my daily questions, I can almost always find the answers here at BP.
Last one for the moment: stick to your numbers. It bears repeating: stick to your numbers. If you want $200/month and a 12% Cash on Cash return for your investment, stick to that number. If you pick 12%, 9% is not good enough, nor is 11.7%. Make your offers accordingly.
Purchase a duplex for 100k, 10% down, 5% interest. 1% property tax rate on 100k.
Insurance is $50/month
So PITI (principle, interest, taxes, insurance) is ~700/month (Mortgage Calc)
So if you your market can support $700/month for the other side of the duplex, you can live for only the cost of repairs. You may or may not have to cover some other expenses. Here is the list of items I use when evaluting the numbers on any 2-4 unit property:
Taxes (included in PITI)
Sewer and Water
Cap Ex and Ops (my personal minimum is $150/roof/month)
Insurance (included in PITI)
Mgmt Fee - as a % (general consensus here on BP is 10%. include it even if you think you are going to self manage)
Vacancy- as a % (8% represents 1 vacant month/unit/year)
Some have and some have not. Though, it's not for everyone.
I know of some who started out this way going into multi-family but went back to single family. Then, there are others who have stayed and have been successful in this realm. It's different for everyone.
Best of luck!
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