Numbers work once PMI is removed with only 5% down, good buy?

Question

Hey everyone. I’m a newb looking to buy my first multi-family house hack. I’ve been running the numbers on several in my area and I have a couple of questions. I don’t have a lot of capital so I am looking at doing 5% down with a conventional loan. On one of the homes, the numbers will give me the cash flow I want after the PMI is removed with 20% equity. Cash on cash ROI is around 30% due to the low down payment. I will also be managing this first one myself, I was thinking of applying the 10% property management fee I factored in towards the principal of the loan until PMI is removed. Does this seem like sound reasoning for my first investment property? It’s a duplex with two 2/1 units. Cash flow is $170 with PMI, $240 after PMI is removed

Craig Jeppesen · Answer

Congrats! Looks like a nice well taken care off home.

Richard Gonzales · Answer

Closed on the duplex earlier today! Can’t wait to get to work on the lower unit so that I can get tenants in.

Nathaniel Hovsepian · Answer

@Richard Gonzales Oh, that's great news! Now you get to do all of your due diligence and make sure everything is on the up and up, but you are on your way to a solid house hack I think. Keep me updated with anything you find along the way, but I think you are good to go!

Richard Gonzales · Answer

@Nathaniel Hovsepian Long story short, someone else got the property on contract then backed out, and now I have the property on contract. Just had the inspection done and, aside from a few things, everything looks good. Closing date is set for Jan. 31 but we will likely close sooner as long as everything else checks out. Thanks again for your advice!

Nathaniel Hovsepian · Answer

@Richard Gonzales That's exactly what I was thinking. You want to have that safety net first, but then everything is just gravy and all of a sudden you are going to have enough for your next one, and then another and another.

Don't analyze too long and miss the opportunity!

Richard Gonzales · Answer

@Nathaniel Hovsepian  Awesome man, I appreciate you taking a look. I’ll definitely have to dive deeper on this one. I can easily afford the mortgage without having a tenant. I like the idea of paying myself rent as I’m planning on using my first house as a gateway to more deals. Worst case scenario, I have to use it towards repairs. Best case I have enough cap ex savings that I can use my “rent” payments towards my next deal

Nathaniel Hovsepian · Answer

@Richard Gonzales looks like you accounted for everything there that i would look at. You even threw in water and garbage, which you could have tenants pay, or share the cost with while you're living there.

Can you easily afford the mortgage on your own? I would say this seems a little bit more like a layup now that I have seen the numbers on it. As long as you can afford to live there with no tenant I would say go forward with it. At the very least, once you get a tenant in there you are going to live rent free.

If it were me, once you get a tenant in there, I would pay yourself rent. Set it aside in a savings account for you in case things go wrong money.

Keep me posted!

Richard Gonzales · Answer

@Nathaniel Hovsepian & @Charles Carillo thanks for the replies and advice! These numbers are based on what I calculated with the BP deal analyzer to include repairs, taxes, cap ex, etc.

Here’s a link to the deal analysis

Good Deal?

Great Article btw

Nathaniel Hovsepian · Answer

@Richard Gonzales I totally agree with @Charles Carillo here. You have a lot of variables here and are relying on a best case scenario for things to work. It doesn't sound like you have accounted for anything other than loan costs either.

I wrote an article about everything that I look at when analyzing a property that you might be interested in. You may already have heard most of this, but might provide some value to you.

https://www.biggerpockets.com/blog/property-analysis-good-investment

Charles Carillo · Answer

@Richard Gonzales

Either way the numbers are really tight. One vacancy or one non paying tenant for 1-2 months or large repair and your cashflow for the year is gone.