Is cashflow possible in a new duplex in greater Houston?
Howdy BP Fam!
I'm looking to owner occupy a duplex in Houston (would prefer a 4plex but I can't find any turn key properties in my price range). That said, I've decided that a "turn key" property would be my best bet. So my question is... do Yall think it's possible to get ANY cash flow with these current rates and home prices? When I do the math it just doesn't seem feasible... and cash flow is what I want. Does that mean right now isn't a good time to buy?
Also, I would prefer to put 3.5% down or at most 10%., but With so little down I believe I'll have to pay PMI which will also drive up the cost. Not sure if I should wait/hope I find something with a better cap rate "eventually" or if I should just buy and know that eventually my property will appreciate.... and if I'm able to refinance at a lower interest rate....then at that point I'll be able to make cash flow. Since it's gonna be owner occupied for hopefully as long as possible I'd prefer to live in a place I actually dig.
What's your price range? Also, if you are doing a 3.5% down FHA loan, you will typically have to pay mortgage insurance for either 11 years or the life of the loan.
Quote from @Kenisha B.:
Howdy BP Fam!
I'm looking to owner occupy a duplex in Houston (would prefer a 4plex but I can't find any turn key properties in my price range). That said, I've decided that a "turn key" property would be my best bet. So my question is... do Yall think it's possible to get ANY cash flow with these current rates and home prices? When I do the math it just doesn't seem feasible... and cash flow is what I want. Does that mean right now isn't a good time to buy?
Also, I would prefer to put 3.5% down or at most 10%., but With so little down I believe I'll have to pay PMI which will also drive up the cost. Not sure if I should wait/hope I find something with a better cap rate "eventually" or if I should just buy and know that eventually my property will appreciate.... and if I'm able to refinance at a lower interest rate....then at that point I'll be able to make cash flow. Since it's gonna be owner occupied for hopefully as long as possible I'd prefer to live in a place I actually dig.
Not sure about turnkey properties, but I can see cash flow or at least even out happening with a brrrr. This is assuming you get a fixer upper that has an ARV Of about 250k. I am thinking there has got to be a multifamily like that that can rent a total of 2k/month or more. Even if you went negative on the cash flow but then you didn't end up putting any down or onlya small amount of your money after the refinance, it would still make sense. That is not even considering the forced appreciation or money you have sitting on the property from after fixing it up. Link of me playing around with the numbers https://www.biggerpockets.com/...
When you are living in one of the units, that of course would reduce your cash flow some more. Maybe possibly a 4 plex fixer upper?
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I would look at airbnb numbers to make your deal work
Quote from @Ashlee Hutson:
What's your price range? Also, if you are doing a 3.5% down FHA loan, you will typically have to pay mortgage insurance for either 11 years or the life of the loan.
the Cheapest duplex I've seen (new construction) is $330K. When I do the numbers on this property with 3.5% down I am not making any cash flow. So not sure if this would be a good investment?
Quote from @Kenisha B.:Depending on the location and condition, I would recommend also considering utilizing the second unit as a short term rental (as someone previously mentioned) or a mid-term rental for traveling nurses or therapists. You would have more cashflow that way. Also, a duplex that you house hack doesn’t have to fully cover your mortgage and provide a little cash flow to be a positive investment. It all depends on your goals. Alleviating most of your mortgage through house hacking can be a successful investing option because you can save up another down payment while someone pays most of your mortgage and repeat the process every year or two.
Quote from @Ashlee Hutson:
What's your price range? Also, if you are doing a 3.5% down FHA loan, you will typically have to pay mortgage insurance for either 11 years or the life of the loan.
the Cheapest duplex I've seen (new construction) is $330K. When I do the numbers on this property with 3.5% down I am not making any cash flow. So not sure if this would be a good investment?
Quote from @Ben M.:
Quote from @Kenisha B.:
Howdy BP Fam!
I'm looking to owner occupy a duplex in Houston (would prefer a 4plex but I can't find any turn key properties in my price range). That said, I've decided that a "turn key" property would be my best bet. So my question is... do Yall think it's possible to get ANY cash flow with these current rates and home prices? When I do the math it just doesn't seem feasible... and cash flow is what I want. Does that mean right now isn't a good time to buy?
Also, I would prefer to put 3.5% down or at most 10%., but With so little down I believe I'll have to pay PMI which will also drive up the cost. Not sure if I should wait/hope I find something with a better cap rate "eventually" or if I should just buy and know that eventually my property will appreciate.... and if I'm able to refinance at a lower interest rate....then at that point I'll be able to make cash flow. Since it's gonna be owner occupied for hopefully as long as possible I'd prefer to live in a place I actually dig.
Not sure about turnkey properties, but I can see cash flow or at least even out happening with a brrrr. This is assuming you get a fixer upper that has an ARV Of about 250k. I am thinking there has got to be a multifamily like that that can rent a total of 2k/month or more. Even if you went negative on the cash flow but then you didn't end up putting any down or onlya small amount of your money after the refinance, it would still make sense. That is not even considering the forced appreciation or money you have sitting on the property from after fixing it up. Link of me playing around with the numbers https://www.biggerpockets.com/...
When you are living in one of the units, that of course would reduce your cash flow some more. Maybe possibly a 4 plex fixer upper?
Hey Ben thanks for the response, your input, and for sending me that link! Very helpful stuff and my creative juices are definitely flowing. Yes, I do/have seen some BRRRs out there. But that concept scares me as I have zero experience with real estate in "real life". In fact, I just learned what a BRRR was on Friday. I wouldn't even know where to start...with that type property. I would 1,000 percentage be interested in going that route once I get some experience under my belt.... but as of now I think self-managing a small multi family property (and learning as I go) is the most stress that my little heart can handle. But I appreciate you sharing that information and planting a seed:)
Quote from @Ashlee Hutson:
Quote from @Kenisha B.:Depending on the location and condition, I would recommend also considering utilizing the second unit as a short term rental (as someone previously mentioned) or a mid-term rental for traveling nurses or therapists. You would have more cashflow that way. Also, a duplex that you house hack doesn’t have to fully cover your mortgage and provide a little cash flow to be a positive investment. It all depends on your goals. Alleviating most of your mortgage through house hacking can be a successful investing option because you can save up another down payment while someone pays most of your mortgage and repeat the process every year or two.
Quote from @Ashlee Hutson:
What's your price range? Also, if you are doing a 3.5% down FHA loan, you will typically have to pay mortgage insurance for either 11 years or the life of the loan.
the Cheapest duplex I've seen (new construction) is $330K. When I do the numbers on this property with 3.5% down I am not making any cash flow. So not sure if this would be a good investment?
I think house hacking would be the only way to make the numbers work. I did "apartment hacking" for years and saved a ton of money by charging my short term roommates/tenants 65% of the rent (shhhhhh don't tell my landlord:) However, I didn't really wanna go that route in Houston as I'm looking to adopt/foster a child. So many choices here. At the very least, I think I'll owner-occupied a 3 bedroom unit, so either way I'll have at least 1 available room to rent. What do you think about the "ward" areas. Ex) 1st ward, 2nd ward, 3rd ward and 5th? One of my co-workers is from Houston and said living close to downtown isn't really "sought after" to Houstonians. He said the downtown scene there isn't vibrate like NYC or Chicago. However, that's where I was hoping to purchase my income property. Would you consider those locations path to progress.
Hi Kenisha,
My company is working on plans to build duplexes in Houston. From our initial pro forma, wIth 25% down you will be able to cash flow. I have not seen a turn key duplex with the ability to CF at 3.5% down. You are correct about Downtown Houston - not much going on there. Rice Village, Washington Ave, the Heights, EaDo, and Garden Oaks/Oak Forest (GOOF), are where people like to be (higher rents). You may notice not many tri-plexes and four-plexes in Houston. This is due to permitting restrictions and the requirement to replat to commercial for 3+ dwellings on one lot.
Hi @Kenisha B. few questions and ideas for you. To me it is always a great time to buy Real Estate as long as the numbers make sense. Now, I do see you are looking for a turn key property. A question and maybe an answer for you is, are you currently paying rent? If so, will this mortgage for your own property be about the same or a bit higher? If the answer is yes, then I think it is a win for you. You are basically going from renting a place to owning your own place and putting your money into your own property, not someone else's. Now, the numbers won't probably let you cash flow with the current market conditions but you might be out of pocket perhaps less than what you are paying for rent right now. To me that is a win. Another idea is list your other half of the duplex on Airbnb and VRBO. I have a short term rental home near the med center and it is producing well. This month alone will bring about $3,500 gross income. Another idea is rent by the room if it is close to a hospital, school. It just takes about getting a bit creative. Let me know if you have any further questions. Happy to help
@Kenisha B. Wealth through real estate is created from 4 sources and over time. Although cash flow is important, you are never doing to become wealthy from cash flow a lone. It's important to consider 1. cash flow, 2. appreciation, 3. equity through mortgage paydown and 4. tax benefits. Think of returns as a 4 legged stool. All legs are important to long term wealth.
@Alex Ramirez Excellent point and food for thought! Because, I live in LA, pretty much anything I buy will be less than my rent. So yes that would be a "win" and cash flow would be icing on the cake.I guess I never looked at like that. Also I know I wanna live in a nicer area since it'll be owner occupied so that also limits some of my options. I guess with my 1st property... I'll try and find something I "like" and with the rest of my properties I can be a little more flexible since I won't be living there. If getting a property means putting down everything you have would you still get the property? I was hoping to get something with 3.5 percent down, but inorder to have a lower mortgage I'd have to put down a lot more down.
Thanks @Mike D'Arrigo for dropping so many gems in that lil paragraph! I'm still learning as I thought equity and appreciation were the same thing and interchangeable terms. Time to google! I also haven't been considering the tax benefits (there are probably some I'm not aware of). Time to google that too! I'm so happy I found this community:)
@Kenisha B. Equity is a source of appreciation. Mortgage paydown is another. The power of real estate is the various sources of returns. I think people get too focused on just cash flow which is important, but you can't over look the two sources of equity and the depreciation tax benefit.
@Kenisha B. I would not suggest putting everything you have saved up as a down payment. If you are going to be occupying your property you do qualify for an FHA loan, which requires as little as 3.5% down. Good Luck!!
Quote from @Kenisha B.:
Howdy BP Fam!
I'm looking to owner occupy a duplex in Houston (would prefer a 4plex but I can't find any turn key properties in my price range). That said, I've decided that a "turn key" property would be my best bet. So my question is... do Yall think it's possible to get ANY cash flow with these current rates and home prices? When I do the math it just doesn't seem feasible... and cash flow is what I want. Does that mean right now isn't a good time to buy?
Also, I would prefer to put 3.5% down or at most 10%., but With so little down I believe I'll have to pay PMI which will also drive up the cost. Not sure if I should wait/hope I find something with a better cap rate "eventually" or if I should just buy and know that eventually my property will appreciate.... and if I'm able to refinance at a lower interest rate....then at that point I'll be able to make cash flow. Since it's gonna be owner occupied for hopefully as long as possible I'd prefer to live in a place I actually dig.
Just remember if you owner occupy 3-4 units and when utilizing FHA financing 3.5% down payment that you'll have to be subject to Self Sufficiency Rule (gross rents of all units X 75% must be equal to or greater than monthly PITIA). This rule was easier to meet when rates were in the 2's however now into the 5-6's it makes the monthly PITIA much higher (principal/interest/taxes/insurance/assessments) and the rule thereby is much harder to meet or exceed.
Some folks attemp to advert this rule by only buying 1-2 unit properties and while that is one way to avoid the rule, you do lose out on up to 3-4 units total and also the economies of scale that come with it too.
It’s something to consider above.
On Conventional there are 5% down programs that allow 2-4 unit owner occupied purchase as well however this program (a niche) has an income cap to it and you’ll need to make income that is “at,” or “below,” the cap in order to qualify.
Hope that helps
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