Opinions on Cash Flow for First Multi-Family?

Question

Hello,

I've been a long time listener but first time poster here on BiggerPockets. I am looking at a duplex to live in one side/househack for a couple years and then buy and hold. I'd be grateful for some opinions on the deal I'm currently contemplating to help give me confidence or to back away from it:

Price: $260,000

Rent: $2,500

1% rule: 0.96%

50% rule: $200 (I feel a 40% ($450) operating costs are more applicable here due to self manage and the property is only a few years old)

Cash on Cash: 11.69%

Annual cash flow while househacking (with cap ex/repairs factored in): will still cost me $9600 per year, but saves me $4000 for equivalent rent situation.

Annual cash flow without househacking (with cap ex/repairs factored in): ~$4,600 (just about $200 cash flow/mo on each unit).

I'm right on the fence but I'll add this is a really nice property/house, the best duplex I've been in.

Other factors: has 1 current tenant who smokes (not in the unit...but unit still smells like smoke) and unit would require some cash (I think about $4000) to clean the smoke up. This tenant is planning to stay for awhile.

Thank you for your thoughts!

Jorjio Hopkins · Answer

@Joseph Wiejaczka Absolutely! Dive in now, and get in the game. This seems like a great opportunity.

Since it's a newer property you'll have lower CAPEX upfront, other than turning the other unit when the smoker eventually moves out. By the way, when you take over the property you'll have to train that tenant, by being strict on your no smoking policy. Maybe even building in a smoke fee if the odor persists. Please consult with a local RE attorney on that to ensure you can legally do that in your area.

It sounds like you've got a good understanding of your numbers, which is fantastic. The big question here is "opportunity cost" right? Do you invest now, or wait.

As a long time BPs listener, you already know house hacking is one of the best ways to get started. You also realize you're going to save $4,000 in year one from living there, then you'll make $4,800 in cashflow the next year after you move out and rent the other unit.

If you're using an FHA loan to purchase this property, then in just two years (with the numbers you provided) you will make about a 90+% ROI. Great deal in my opinion!

Other benefits as well:

• Tax depreciation
• Principle pay down (building your wealth instead of throwing your $$ away by renting)
• Hands on experience
• You're taking action and getting yourself in the game!!!

Please keep us informed on updates and progress with this acquisition.

Good luck Joseph!

Joseph Wiejaczka · Answer

Thanks for the reply! $2500 both units. Taxes ~$5000 principal residence/~$7000 for rental, I believe insurance ~$1200/yr.

Neighborhood is good/safe for renter's, likely will not appreciate as fast as other neighborhoods b/c many duplexes in this area.

The only other improvement I would make is putting in an egress window, with a contractor friend (<$2k).

The question I keep second guessing is if it's worth it for $4600 annual cash flow for the long term.

Jeannette C · Answer

Seems to have potential. What are the taxes and insurance estimate?

Is that $2500 one unit, or both combined?

Is the neighborhood improving - how will the property appreciate?

Any other improvements expected, other than the 4k?

If you're going to live there, breaking even (with your own housing expenses) is beautiful too.

Opinions on Cash Flow for First Multi-Family?

3 Replies