Is this a good deal? Houston House-Hacking a 2/2 Duplex Help!

20 Replies

Hi All,

My wife and I are going to see several duplexes in near Emancipation Park and TSU in an area that is being developed.

There are duplexes that don't seem to need much help besides a kitchen renovation and some added A/C. I estimate costs of repairs and renovation to be $20-30k. If we buy, this would be our first house purchase. We more than well qualify for an FHA loan and are pre-qualifying right now.

Please help me figure out if this is a good deal for house hacking, owner-occupying for a couple of years then moving out to cash-flow positive. What are things to be looking out for when I go look at these places on Saturday? 

2/2 duplex, built in 1944

Asking Price: $290,000

Estimated Repairs: $20-$30,000k.

Rent rate after repairs: $1500

Current rents: $975

Down-payment at 3.5%: ? at $290k it's $10150

CMA by my agent I believe at $290k:
$1,386 Mortgage (3.5% down, 30 yr loan, 4% APR). How do I factor in PMI?
$ 300 Taxes (2014 HCAD appraised value at 2.66% taxable rate)
$ 200 Insurance (Estimated).

Elementary is a 6 on GreatSchools.

What do you think I should assume for maintenance, vacancy, and capex? Anyone have experience here? How do I determine the costs of monthly expenses beyond this?

Thanks! First post asking for help!

Cheers,

Tim

The asking price seems high for the needed repair costs but I think its a good house hack!

Maintenance 5%. Vacancy 7%.

I am also "house hacking".  I bought my duplex for $230k two years ago (now worth $275k) and I'm getting $1,200 rent (2 bed / 1 bath).

I don't know your area but I'm following your topic because I'm very interested in hearing input from others.

Originally posted by @Tom Smith :

The asking price seems high for the needed repair costs but I think its a good house hack!

Maintenance 5%. Vacancy 7%.

I am also "house hacking".  I bought my duplex for $230k two years ago (now worth $275k) and I'm getting $1,200 rent (2 bed / 1 bath).

I don't know your area but I'm following your topic because I'm very interested in hearing input from others.

 Thanks Tom! I appreciate your reply! Are you enjoying the house-hack? What unexpected things have you run in to?

Originally posted by @Tom Smith :

The asking price seems high for the needed repair costs but I think its a good house hack!

Maintenance 5%. Vacancy 7%.

I am also "house hacking".  I bought my duplex for $230k two years ago (now worth $275k) and I'm getting $1,200 rent (2 bed / 1 bath).

I don't know your area but I'm following your topic because I'm very interested in hearing input from others.

 Thanks Tom! I appreciate your reply! Are you enjoying the house-hack? What unexpected things have you run in to?

Also about the repairs: I estimated that $10k for two full sized AC-units and duct work since it looks like there is only window units. Then $10k  for two kitchen reno's and then budgeting more in for surprises.

House Hacking is the best!  I became a first time home owner and first time landlord at the same time.  So I learned a lot in the process and I'm still learning. 

An unexpected thing for me would be: Getting a state rental permit / inspection for the unit that is being rented.  I have to do this every time I have a turnover (before the new tenant is moved in).  I'm not sure if all states do this.  This is a $50 fee for me.

Make sure you can live there without being dependent on renal income.  Also, run the numbers as if you are renting both units to know it is a good cash flowing property. 

@Tim Shin - the last advice there about evaluating with both sides rented out is how you tell if it's a deal.  Looks like your gross rents with both units rented would be well under 1% of value, so I'd be hesitant.

It sounds like it will work if you can get the $1,500 in rent?  Are these rents comprable to other 3 bedrooms in renovated condiiton.  Are you OK with your share of the rent also being $1,500.  If you can get $3,000 in rent it sounds like you are around the 1% rule and it could very well be an OK deal for you

Originally posted by @Barbara G. :

It sounds like it will work if you can get the $1,500 in rent?  Are these rents comprable to other 3 bedrooms in renovated condiiton.  Are you OK with your share of the rent also being $1,500.  If you can get $3,000 in rent it sounds like you are around the 1% rule and it could very well be an OK deal for you

 It's close to 1%. I had a frie put some eyes on it. There aren't really other fully updated units. The agent shows $1500 from comps fully updated but in a slightly different neighborhood. Direct comps that aren't updated go for $975-$1200. If I can go 203k loan with repairs and purchase negotiated down to total $300k, rents at $1200/month for both units, 5% capex, 8% vacancy near a university, 7% management fees, it's at .99% (almost 1% rule?) and $240 cash flowflow a month. But this requires negotiating down from $290k to $270k and reno only being  $30k. Which I think is $10k is good padding for ac and kitchen. 

Thanks! Anymore tips from Texas folks? We're about to go look at 4 duplexes!

Did you price out your kitchen renovation costs?   The new appliance packages ( kitchen cabinets/ refrigerator/ stove/ dishwasher/microwave/ hood/venting/sink /counter tops (granite?) tile floor? backsplash/ faucet/demolition?/Installation???   You can price those things out in Home Depot.  Did you figure the kitchen renovation cost for the 2 apartments???

Originally posted by @Barbara G. :

Did you price out your kitchen renovation costs?   The new appliance packages ( kitchen cabinets/ refrigerator/ stove/ dishwasher/microwave/ hood/venting/sink /counter tops (granite?) tile floor? backsplash/ faucet/demolition?/Installation???   You can price those things out in Home Depot.  Did you figure the kitchen renovation cost for the 2 apartments???

 Hi Barbara,

Good point. No I didn't price out the costs but I've seen some good kitchen reno's from rehabber friends of mine on single famili homes be in the range of $5-10k. So I figured for a rental, maybe $5k each unit.

After seeing the properties, the asking price is too much. They say they refused an offer at of $274k and the properties needs more work than a simple $10k AC job and kitchen reno's. The kitchens are poorly set up and walls need to be removed to get more reasonable counter space from them in a reno. The washer/dryer is right next to the stove and that's not the kind of place that commands $1500/month rents. Currently though, they could go for $1200 a month rents. There is not really space between the upstairs and downstairs units to run duct work for AC so you'd have to add ducts to the walls or use those individual room AC's that are a step up from window units. There is some foundation work that should be done at some point in the property's life but it isn't egregious for a rental. If you move walls though... Some of the windows looked like they were in bad shape and each one of those duplexes has about 30 windows. If a new window and frame costs $400 that's about $12k in windows. Tenants had taped up the windows at the edges to prevent air getting out...

We don't think these properties are deals for us: 2804 Cleburne St, Houston TX.

I think we'd like a bit of a nicer set up and I think there are less expensive properties to rehab into a better deal.

Anyone have more feedback?

Hey @Tim Shin ,

Im local to the Houston area and also looking for my first duplex to house hack. This will also be my first purchase as well. I noticed those duplexes there that you are referring too all popped up at the same time.. been for sale for a while now too. I find the numbers pretty rough to meet what i was personally looking for. It sounds like you dug deeper and really figured it out. Awesome! Good luck in your search.

@Tim Shin

It sounds like you've decided this property is too expensive. I only wanted to add one thought. I wouldn't recommend different criteria for a house hack vs. a non-occupied investment property. In other words, I wouldn't pay more for a property just because you are going to live in it.

yeah you need 3.5% for down payment for a FHA loan but dont forget closing costs! this could add up to 6%. dont be fooled by people saying that all you need for a fha is 3.5%.....

@Tim Shin

Better be careful on them rent estimates. Are the properties you're comparing truly comprable?? It's easy to get excited about a deal and make the numbers fit. Be a pessimist when you budget! Pessimists make good criteria. Optimists learn from putting themselves out there. You want a healthy mix of the two.

@Tim Shin

I own a duplex (Two 1 bedroom unites 900sf each) on the next street. I think your rent estimate is high. For a three bedroom/ one bathroom apartment to get $1500 you must do an extreme rehab. There are three duplexes in a row for sell on Cleburne, two of them are owned by the same person. He is trying to sell them at that price for the last 6 to 8 months. Which is high for the condition of the properties. However, I do believe you are on the right track, just keep on looking.  

Originally posted by @Tim Shin :

Anyone in Houston know of the vacancy rate to use for duplexes near UofH or TSU?

 So far I have been looking for tenants twice and both times the unites rented in less than a week.  

@Yavor Tomov

Thanks for letting me know. How long have you owned the properties? What % would you calculate that vacancy to? What do typical 1-bedroom units go for on those streets? 

Apparently, my agent says, that duplex owner has been trying to sell these properties at over market price for years now in a condition that does not warrant those prices. @Matt Dowell , I didn't think the rents given to me were conservative comps. The units currently rent for around $975.

@Kyle Gregg how much do the closing costs typically range on FHA? I was expecting maybe $8000.

I wish you all the best looking for your first multifamily! I am moving to Houston early next year and have already started looking for a small multifamily property (less than 5 units) to live in. I am currently looking at realtor.com but can't really find anything of interest. If anyone has off market deals, know anywhere I can find deals or any deals at all that would fit in my criteria, feel free to forward them to me :)

This post has been removed.

Even though this is an old post I would still like to share something that I think could help people who still want do house flipping or anything similar that requires remodeling. There now is a free remodeling and ROI calculator that is easy-to-use and accurate: https://app.mykukun.com/Home-Renovation-Costs

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