Newbie looking at first investment, thoughts?

Question

Hello! I have around 50k saved, and am looking at a triplex to house hack in my area. The house is in a really good neighborhood, and is livable.

~speed bump~

The house is around 200k, but the morgage would be less than my current rent. No big credit problems, no big debt at all.

Is this a good deal, or should I play it safer? Anything helps!

Brendan F. Nagle · Answer

Go for it. House hacking is a great way to start. PM me if you want help with the numbers. I have 3 questions that should help you gauge if your ready for this step.

1. What is the current state of the opportunity? How much rehab, inspection, appraisal, comps, is it rented, market rate vacancy rate. Do you have contractor, lawn, plumber, handyman in place.

2. Are you ready for the opportunity? Is your financial house in order, family ok/ready to live in triplex, pre-approved, back up plan, emergency fund for oops or unexpected.

3. Do you have your why? Big or little this project will have ups and downs. Your why will keep you on task even when the chips are down.

Now if you can answer 3 questions. Put a business plan together.

Jim Pellerin · Answer

@Steven Haughey You should do a full analysis to determine if it's a good deal. Total income vs ALL expenses. Not sure what you mean by playing it safer?

Sarah Brown · Answer

Why is the $200k price tag a speed bump?  Have you penciled out the rents vs the mortgage?  Seems like you have a decent downpayment.  PI payment with 5% interest (estimating high) would be about $885.

Charlotte Dunford · Answer

@Steven Haughey I would suggest you go into mobile home park investing. I quickly scaled up that way from 3 units to 47 units within 10 months. With $50,000, you can take down a park around $250k that generates you much higher returns than a triplex or duplex would. I own both and I know exactly how much higher of cash on cash mobile home park would give you.

Kyle Smith · Answer

@Steven Haughey you’ve proven to yourself that you can save a large amount of money so you’re already ahead of the game. Everyone is afraid of the horror stories they hear when they’re just starting out. The fear doesn’t ever totally subside, but as you learn and grow, you understand how to mitigate the risks more effectively.

In the end, fear is what holds 99.9% of people back from REI. At some point though, once you’ve done your due diligence and limited your downside, you have to take that leap and go for it

Sarah Brown · Answer

@Steven Haughey

I can appreciate that, and makes total sense.  I spreadsheet out every investment I buy.  I want to know what cash I'm investing, and I want to know what cash flow I will receive every month.  I never use all my cash to purchase or rehab!  I always want to make sure I have some left in the bank when I am done.  This will help protect you for vacancies and rehab surprises.  I also have a minimum cash-flow requirement for all rentals.  Sounds like a decent deal on the surface.  Pencil it out, and make sure to do your due diligence on the condition of the property.  Good luck!

Craig Curelop · Answer

@Steven Haughey - Are you able to cover your mortgage with the rents from the other units/rooms?  It is hard to LOSE with a house hack so long as the house doesn't fall apart. If you can cover your mortgage and live for free, I suspect you'll be saving a whole bunch. At $200k, you only need to put down ~$10k. I'm guessing you can easily save that in a one year of house hacking so you can then house hack again.

The power of house hacking is not in getting THE BEST deal at THE LOWEST PRICE. You are going to buy and hold this for a long time so getting $10k or $20k off will save you maybe $50 a month in cash flow? That is nothing compared to the hundreds (or thousands) you'll be saving from rent.

Even more importantly, by getting into your first house hack, you start that one-year timer so that you can get your next one. That is where the real wealth building comes from... getting multiple properties under your belt.

Stephanie Martinson · Answer

@Steven Haughey $200k sounds like a good deal where I live, but what is the market like where you live?  Also- what is the rental market like?  As @Sarah Brown said, the mortgage would be around $885/month, it seems like you should be able to rent the other two units out for that price, or a little less EACH... but I'm not sure what the Jacksonville market looks like.

If you're planning to put money in to it to fix it up, I would bring a contractor or two over and see how much your repairs would be.  You can always put it under contract before then, and make it contingent upon inspections.

Keep fighting the good fight!  You will find figure it out if you keep working on it.

Nathaniel Hovsepian · Answer

First off, what is your definition of livable? I wouldn't want to put all of my money into a house and then a couple months down the road a bunch of major repairs start to creep up and put stress on your financial situation.Personally, I always try to get my house in as new condition as possible before renting it out to people. This will cost more up front, but will cause less headaches down the line.Just based off of what you said here though, I would go for it. If you can afford the mortgage then it seems like a no brainer. Then you get tenants into the other 2 units and all of a sudden you have money left over each month that you can start looking for new houses with.

Alex G. · Answer

This does not necessarily mean that owning a property is cheaper than renting it because half of the rent goes to cover total operating costs (repairs, maintenance, taxes, insurance).

It ii cheaper only if (mortgage + 0.5 * rent) < rent or, in other word, mortgage < 0.5 * rent.

Newbie looking at first investment, thoughts?

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