appreciation versus cash flow

12 Replies

Hi,

So, I've been crunching numbers on a property in a hot area. It's a 2 family for $350,000. In my opinion and from living in the area (outside of this area) you can't go wrong buying in this market. (Fairfield ct). 

I want to live in this property and stay for 2 years use the equity in this home to buy another. When I crunch the numbers and take out 50% from the rent of rental apartment, (save the remainder for Cap expenses) I'm left with a fairly large chunk out of pocket, I think I can swing this but the numbers will be tight. I want to live and invest in this area but everything is so expensive. I believe I have to start somewhere and if I have to tighten my belt for a while in order to get in the market, you do what you have to do. Right?

I guess my question is: is this a smart strategy or should I just buy in less expensive areas. Only problem is EVERYTHING is expensive here!

I appreciate any thoughts on this.

Thanks,

Lesley

Hey Lesley, great to see another investor in the area! Fairfield is a great market right now, and rentals are going strong too. I spend a lot of time looking in Fairfield (own one flip now, closing on a second early August). Concerning a duplex in Fairfield, you are correct that everything is expensive, and while you could look in a less expensive area - they will come with a) higher taxes b) lower rents and one could make the argument for c) more difficult tenants, though c) is not necessarily true.

I think for our area, Fairfield offers a very steady equity build, as tenants are traditionally more long-term, and pay great rents. If you were going to house hack for a few years, it would be a great place to do so.

With that said, I wouldn't rule out Black Rock (certain areas). And I would absolutely avoid anything in a flood zone.

if your living in it your expenses should not be anywhere near 50% in reality.. unless you damage your own apartment or don't pay your rent to your self  :) 

run the numbers with just tax's and insurance and mortgage payments.. do your own PM and then maybe another 10% for on going maintenance that should be about right.

How are you planning to access the equity?  Sell or refi?  Two years is a very dangerous amount of time to plan for building equity, which is something I discussed in my first blog post this morning.  Here is the link if you are interested: http://www.biggerpockets.com/blogs/6815/blog_posts...

House-hacking is a great way to get started, but you should still analyze the property as if you are not going to live in it. Taxes in Fairfield County are a lot higher than a lot of the country, so that could hurt your cash flow.  Find the actual tax and insurance numbers, then run the numbers assuming both units are rented at market value.  Do you make a good ROI after putting away enough to cover management, vacancy, and unexpected expenses?  If so, go for it.  If not, find something else.  

Thanks for all the great input. My plan is to tap into the equity but I'm new to investing so I think I will see how things go in my first "live in" property and go from there. 

Originally posted by @Lesley Govan :

Hi,

So, I've been crunching numbers on a property in a hot area. It's a 2 family for $350,000. In my opinion and from living in the area (outside of this area) you can't go wrong buying in this market. (Fairfield ct). 

I want to live in this property and stay for 2 years use the equity in this home to buy another. When I crunch the numbers and take out 50% from the rent of rental apartment, (save the remainder for Cap expenses) I'm left with a fairly large chunk out of pocket, I think I can swing this but the numbers will be tight. I want to live and invest in this area but everything is so expensive. I believe I have to start somewhere and if I have to tighten my belt for a while in order to get in the market, you do what you have to do. Right?

I guess my question is: is this a smart strategy or should I just buy in less expensive areas. Only problem is EVERYTHING is expensive here!

I appreciate any thoughts on this.

Thanks,

Lesley

Rationalization is the most expensive word in the REI dictionary.

@Lesley Govan are you focusing in the town of Fairfield or areas through out Fairfield County?

Nick,

I would like to stay in Fairfield County because it's closer to my job and but I would consider investing in other areas.

Thanks,

Lesley

@Nick G. you asked about elsewhere in Fairfield county. Have anything? I'm interested.

Not at the moment Travis.

@Travis Lloyd no, I'm currently looking for myself also and expanding my search. 

Compared to Westchester County NY, the numbers in Fairfield County are looking more appealing.

@Nick G. that's too funny - I've been hearing a lot of buzz around here that the prices are getting too high / market too competitive and that the key is to start looking in Westchester County!

Grass is always greener - I usually ignore the chatter, but its entertaining to hear both sides.

@Travis Lloyd That is funny, I guess we're all in trouble!

Everyone has their own view, personally I am comparing properties in northern Westchester and southern Fairfield that I would be interested in occupying for a 1 year live in flip. Biggest difference I see is lower property tax in CT. 

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Join the Largest Real Estate Investing Community

Basic membership is free, forever.