Considering house hacking a duplex. Few questions

8 Replies

Am looking to buy my first house. Found a duplex for $550k with tenants paying $1100 on a month to month lease. Tenant that would be staying is expecting a rent increase. My question is about doing 3.5% down or 20% down. 

Option A - Put 3.5% down and pay $1800ish a month to live in one side of the duplex. Rent would not cover the mortgage if I happened to move out after the first year.

Option B - Put 20% down and pay $1200ish a month to live in one side of the duplex. Rent other unit out for $1300-$1400. Rent would cover the mortgage + $200ish extra a month if I moved and rented out both units. 

Option C - Wait for better opportunity or just buy a single family home and live there for the next 1-2 years then turn it into a rental when I move out. 

Is it common to have to put down 20% in order for a property to get close to cash flow? I have extra funds to cover a negative cash flowing property but am unsure if I want that with how high the market currently is. Trying not to count on appreciation being a factor.

If you are looking for the highest rate of return based on capital invested, I would recommend option A. Less money down = higher returns in the long run. Also, it sounds like you still have the other 16.5% of the down payment. You could either a) keep this as cash reserves or b) invest this in the meantime.

If you have the cash for a higher down payment and are concerned about your personal income stability, I would do option B.

I would only recommend Option C if this current deal's numbers really don't make sense. 

This duplex will allow you:

1. Try being a landlord while minimizing risk

2. Get you to act! The best way to learn is experience. The first deal is unlikely to make a killing, but the lessons you will learn are priceless.

In summary, all your options are good. Just pick one and keep climbing.

This is a tricky situation. I believe the reason you house hack is to take advantage of only putting in the 3.5% FHA loan down payment. You have to evaluate your options and see what makes sense for your situation. If this gets you into real estate and you can't find any other duplex's that make sense I personally would go for it. You're going to pay rent anyways so it makes sense to get started. If it saves you enough money to jump on another deal in the near future with only doing the that small down payment it makes sense. If you're okay with waiting for a while and are focused on your current numbers with cashflow put the 20 percent down.

Originally posted by @Alessandro Vene :

I am confused by the numbers, a 550000$ loan with 3.5% down would make a monthly payment of about 2900$ a month, doesn't seem like a good deal, but maybe is just me

 Yeah those are the numbers. I've been watching/waiting for months and haven't found a duplex that would cash flow with 3.5% down in my area

Originally posted by @Jesse Thurston :

This is a tricky situation. I believe the reason you house hack is to take advantage of only putting in the 3.5% FHA loan down payment. You have to evaluate your options and see what makes sense for your situation. If this gets you into real estate and you can't find any other duplex's that make sense I personally would go for it. You're going to pay rent anyways so it makes sense to get started. If it saves you enough money to jump on another deal in the near future with only doing the that small down payment it makes sense. If you're okay with waiting for a while and are focused on your current numbers with cashflow put the 20 percent down.

 I haven't found a duplex in my area that would cash flow with less than 15-20% down since I started looking about 6 months ago.  I've considered waiting for the market to come down before jumping into real estate but with the current Fed policy I don't see that happening anytime soon. Considering just throwing out some lowball offers on what's currently available so that the numbers would make more sense with 3.5% down. The thought of having a very negative cash flowing duplex just doesn't feel like the right move right now

Originally posted by @Colton Stonestreet :
Originally posted by @Jesse Thurston:

This is a tricky situation. I believe the reason you house hack is to take advantage of only putting in the 3.5% FHA loan down payment. You have to evaluate your options and see what makes sense for your situation. If this gets you into real estate and you can't find any other duplex's that make sense I personally would go for it. You're going to pay rent anyways so it makes sense to get started. If it saves you enough money to jump on another deal in the near future with only doing the that small down payment it makes sense. If you're okay with waiting for a while and are focused on your current numbers with cashflow put the 20 percent down.

 I haven't found a duplex in my area that would cash flow with less than 15-20% down since I started looking about 6 months ago.  I've considered waiting for the market to come down before jumping into real estate but with the current Fed policy I don't see that happening anytime soon. Considering just throwing out some lowball offers on what's currently available so that the numbers would make more sense with 3.5% down. The thought of having a very negative cash flowing duplex just doesn't feel like the right move right now

If you find a investor friendly real estate agent it's worth a shot. I see a lot of duplex's go for 20 to 30k less than the listing price. I have also seen some go for 80k less than listing. It's worth a call to an agent if you have a realistic number in mind. I have presented offers that were 50k off list before for clients and just missed out on the building. Keep in mind that using the FHA loan is an advantage to at least get a start into investing and just because the numbers don't work now it doesn't mean they won't in a few years. Rental prices have gone up drastically in my area over the past few years. Not saying that will make this particular property work, but something to keep in mind depending on your strategy.