First multifamily deal: Can you house hack a duplex with $20–30k right now?

[Chelsey Byrd]

Hi everyone,

I’d like to move into small multifamily long-term rentals as a long-term wealth strategy. I’m hoping to start house hacking a duplex this summer with $20–30k and am trying to figure out if that’s realistic.

I’ve been researching markets in the Midwest and Southeast and have looked at Cleveland, where I’m seeing duplexes around $100k–$200k in neighborhoods that seem to be decent, but I’d appreciate a reality check.

A few quick questions:

• -Is $20–30k enough to realistically house hack a duplex right now?
• -Are there markets where this budget still works well? Is Cleveland one of them?
• -Would it be smarter to wait and save more?

I work remotely, so I can live anywhere. I’m comfortable with cosmetic updates but hoping to avoid major rehabs as I lack experience. The goal would be to house hack now and repeat in 12–18 months, gaining at least some cash flow from the first SMF as I move into the second.

Would love to hear any advice or market suggestions.

[Rick Albert]

You don't know until you start talking to boots on the ground. For example I have rentals in Birmingham where you could probably do this but each area is going to be different.

You mention you want to cash flow within one year and then move on to the next. In this market right now if you are putting 3.5% down-10% down that is unlikely to happen. The appreciation gains are slowing and the reality is if the numbers work with a low down, then an investor putting 20%-30% would like just buy it and could potentially pay more.

Also keep in mind the lower the price point you do run into some risks (which can be mitigated but you should be aware):

1. Cost of maintenance. It doesn't matter the price point, the cost of a roof on a $100K property will cost the same as a roof of the same size on a $300K asset. Same concept with a sewer line. Last year I had to trim back a tree in Birmingham that was massive. Cost over $4700. The tree didn't care what kind of property was there. So if you are looking at some of these smaller properties, think about how to reduce your expenses such as possibly removing trees, etc.

2. Dollar appreciation is a very important metric. If the total rents is $1,500 between two units and appreciation is 3%, then each year that's $45. But if you buy a fourplex that brings in $3,000/month, then your appreciation is $90. Your cash flow increases faster with higher numbers. The same concept with appreciation on an asset. It's why investors in high priced markets build wealth so quickly. 

3. With $20K-$30K, I would be looking at 3-4 unit properties in the $300K-$400K range. Put 5% down conventional so eventually you can get rid of the PMI without refinancing, negotiate with the Seller to pay your closing costs, and go from there. Your combined rents will be higher, which puts you in a better cash flowing and appreciation position long term.