Live in duplex when starting out

9 Replies

Hey guys!

I have decided I am going to learn all I can about real estate and take the plunge into a duplex (if I can find the right deal) in my local area of Madison, WI by Q3 2018.  I have seen many say a great way to start out is living in a multifamily home, however, I am confused when reading forum posts and checking out articles about the cashflow of this situation.

When you live in your rental home, should you accept having to pay some of the mortgage yourself hoping that when you purchase the next place you will get a tenant to take your current place to start cash flowing?

From a consumer standpoint, it makes sense to be paying your own mortgage, but I am honestly sick of being just a consumer and am ready to do what I need to become an investor. In the Madison market it seems impossible (to a newbie)  for the cashflow to be positive when renting out only one side of the duplex. What do you guys think?

I got started by house hacking a duplex. After collecting rent from my tenant, my mortgage plus utilities cost me around $500 a month. Doesn't sound like a great deal, but when you consider that a 1 bedroom apartment in the Seattle area is well over $1,000 a month it starts to make sense. It allowed me to save more than I could have renting, and that's the whole point of house hacking. It's an easy way to enter real estate investing because buying owner occupied has less stringent requirements than buying a rental property.

I moved out of state after one year, and hired a property manager. Now it cash flows well. In your market having to still pay $500 a month after collecting rent may not make sense. You just have to look at what rent would cost in your market. If your negative cashflow is substantially less than what it would cost you to rent I say it's worth it. Just make sure it will be positive cashflow when you move out. If the market drops while your in the duplex you'll be under water, and won't be able to sell. Then you're stuck with a negative cashflow property.

Thank you for the response Jonathan,

In my neck of the woods rents are also above 1000 so it makes total sense, even if I am not positive to have a payment way cheaper than my current rent.  That is pretty motivating to see it worked out well for you!  Every time I saw an article on house hacking I figured it was a different phrase for flipping, looks like I have some more articles to read.

@Zach Covey , first off, welcome to BP!

You would be lucky in Madison proper to find a duplex that would cashflow if you rented both sides - the property values are just silly on small multi-families around here.  If you are willing to move away from Madison a little, you can do a little better, but I doubt you will ever find a duplex that will truly cashflow from 1 unit.  That is not to say that you still shouldn't consider doing this - you can certain live pretty inexpensively "house hacking", while still building equity through loan paydown and appreciation.

Stop in at the BP Meetup this Wednesday if you can - there will be people much smarter than me there to help you out.

@Dave C. I have been noticing prices in and just around the city are pretty crazy right now.  I have slowly been widening my search area and have been thinking about talking to some real estate agents in towns outside of the city (or even waiting a bit longer to take the leap to build funds).  That's pretty sweet someone local found this already, thank you for letting me know about the meet up!

@Zach Covey it's hard to cashflow in most of the U.S. right now. Keep in mind I bought 5 years ago. Back then finding a cash flowing property was easy, even in Seattle. I could never find the same deal in that area now.

It could still be worth it just in terms of saving money and having a tenant help you pay the loan down. It depends on how mobile you need to be. If you are positive that you will live in Madison for the next ten years it could be worth it. If you will have to move then maybe not.

If I was in your shoes I would look for something that needs a lot of cosmetic work. The structure is sound, but it's real ugly. Kitchen, bathroom, floors, paint etc. Slowly rehab it yourself while you live in it. Buying properties that need work is how you have to do it now, because the market is just too hot. If you buy a turn key property off the MLS most likely the numbers aren't going to work.

I'm not an expert, I only own one property. But this is exactly what I did so I'm sharing my experience. I knew nothing about anything when it comes to renovating. Google and YouTube will teach you anything. I just took it real slow and didn't stress. I was able to cover the mortgage myself so I wasn't like I had to get a tenant asap. Took me a month to rehab each unit. A contractor could have done it in 3 days lol. But I saved a TON of money. Maybe if you find a deal like this you'll come out with some equity on the back end.

Thank you for the post @Jonathan Hulen.  I have been coming to the same conclusion and appreciate the insights on how to get started and especially to be patient in this market.  There are many of us newbies that just want to get into a deal.  

@Zach Covey the greatest benefit you receive from house hacking is lowering your living expenses. If you can cash flow from house hacking then that is icing on the cake. If you can don't change your lifestyle you should be able to save and reinvest.  

@Zach Covey ,

Along with the cash savings on your own living me a huge benefit is that you can buy a 1-4 unit with an fha loan using 3.5% down.  If i wanted to buy a duplex for 100k, i would have to put down 20%(20k) if i wasnt living there, compared to you only putting down 3.5%(3,500).  That is a pretty big benefit right there. 

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