Advice - OO duplex strategy/using first property to reach the next one

Member since 2022 · 22 posts · 17 votes

Hi everyone,

My wife and I recently bought our first property, an owner occupied duplex in northwest Washington. We purchased it for $778k and it appraised at $825k, so we do have some built in equity from the start. We live in one unit and rent the other.

The rented side is currently at $1,980/month. Based on the appraisal and what I am seeing locally, market rent seems to be closer to around $2,400 in current condition. Even with the rental income, we are still covering about 63% of the monthly PITI ourselves.

Obviously one of the main reasons we wanted to house hack was to lower our personal housing cost, increase savings, and use this property as a stepping stone into the next one. Right now I am trying to figure out whether I should view this property mainly as a stable long term asset, or more as something we should actively improve and reposition over the next 1-3 years.

The interiors are dated and mostly original early 2000s finishes, so I do think there is upside there. At the same time, I do not want to force a plan onto a property just because I want to keep moving quickly.

For those of you who have more experience, how would you think about a property like this?

Would you focus on keeping it stable, or would you look at it as something to actively improve so it can better help fund the next purchase?

Thanks in advance for any advice!

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Stacy RaskinBusiness Member

Lender · Member since 2022 · 1k+ posts · 503 votes

5mo

It depends on how much more rent you would get if you were to remodel the tenant side if we are talking about potential upside on the rents. Also, how reliable are the current tenants and how well do you guys get along? Since you live there, getting along with them is a factor besides the rent received.

If I were in your shoes, I would want to know how much would a remodel cost and how much more rent could I possibly get if it were remodeled? Also, the issue with rental versus sales listings is that it is often difficult to get true closed rental comps (as in you know what the rent was when it was leased and not the asking rent), because in many markets, landlords or agents don't use MLS for rentals unless a very high end property. Sometimes what is advertised and what the landlord actually rents for is not the same. Getting reliable data on rents would be helpful.

Also, important are landlord tenant laws. For example, the landlord experience in Los Angeles CA is a different landlord experience compared to Cleveland, OH. As an investor and mortgage broker, I would want to put my money in a location where the state, county and city landlord tenant laws would not make my life difficult and my financial returns limited.

Thinking about these items as well as where can your money yield the most for you and your goals are good to consider for what would best for you. That might mean investing locally or using your money elsewhere perhaps in an area that will make sense for the returns you want and the type of landlord experience would work best for you- whether that's being on site or an out of state investor for other properties.

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Stacy RaskinBusiness Member
Lender · Member since 2022 · 1k+ posts · 503 votes
5mo
It depends on how much more rent you would get if you were to remodel the tenant side if we are talking about potential upside on the rents. Also, how reliable are the current tenants and how well do you guys get along? Since you live there, getting along with them is a factor besides the rent received.
If I were in your shoes, I would want to know how much would a remodel cost and how much more rent could I possibly get if it were remodeled? Also, the issue with rental versus sales listings is that it is often difficult to get true closed rental comps (as in you know what the rent was when it was leased and not the asking rent), because in many markets, landlords or agents don't use MLS for rentals unless a very high end property. Sometimes what is advertised and what the landlord actually rents for is not the same. Getting reliable data on rents would be helpful.
Also, important are landlord tenant laws. For example, the landlord experience in Los Angeles CA is a different landlord experience compared to Cleveland, OH. As an investor and mortgage broker, I would want to put my money in a location where the state, county and city landlord tenant laws would not make my life difficult and my financial returns limited.
Thinking about these items as well as where can your money yield the most for you and your goals are good to consider for what would best for you. That might mean investing locally or using your money elsewhere perhaps in an area that will make sense for the returns you want and the type of landlord experience would work best for you- whether that's being on site or an out of state investor for other properties.
[email protected]818-770-0340
Bright Skyline518 Reviews
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1 Reply
- Jason Khoury
  OP
  Member since 2022 · 22 posts · 17 votes
  5mo
  Quote from @Stacy Raskin:
  
  It depends on how much more rent you would get if you were to remodel the tenant side if we are talking about potential upside on the rents. Also, how reliable are the current tenants and how well do you guys get along? Since you live there, getting along with them is a factor besides the rent received.
  If I were in your shoes, I would want to know how much would a remodel cost and how much more rent could I possibly get if it were remodeled? Also, the issue with rental versus sales listings is that it is often difficult to get true closed rental comps (as in you know what the rent was when it was leased and not the asking rent), because in many markets, landlords or agents don't use MLS for rentals unless a very high end property. Sometimes what is advertised and what the landlord actually rents for is not the same. Getting reliable data on rents would be helpful.
  Also, important are landlord tenant laws. For example, the landlord experience in Los Angeles CA is a different landlord experience compared to Cleveland, OH. As an investor and mortgage broker, I would want to put my money in a location where the state, county and city landlord tenant laws would not make my life difficult and my financial returns limited.
  Thinking about these items as well as where can your money yield the most for you and your goals are good to consider for what would best for you. That might mean investing locally or using your money elsewhere perhaps in an area that will make sense for the returns you want and the type of landlord experience would work best for you- whether that's being on site or an out of state investor for other properties.
  Really appreciate this response. I think this is the right way to look at it. Based on the appraisal, as-is market rent looks to be around $2,400/unit, and the current tenant is at $1,980, so I do think there is real upside. I also looked at a few nearby active listings and it seems like updated 3-bed townhouse/house product can get into the high-$2,000s, which makes me think there is a path here if the renovation is done well. That said, I agree I need to be careful not to underwrite this too aggressively. $3,000 might be possible, but I probably should not treat that as the base case until I have better proof. I think the cleanest first step is updating our side first, then getting much tighter on true rehab cost and realistic post-reno rent before making any bigger decisions on the tenant side. If you were pressure testing this, what rent would you personally need to see after renovation before you felt the extra effort was worth it?
  0 Reply
- Stacy RaskinBusiness Member
  Lender · Member since 2022 · 1k+ posts · 503 votes
  5mo
  Quote from @Jason Khoury:
  
  Quote from @Stacy Raskin:
  
  It depends on how much more rent you would get if you were to remodel the tenant side if we are talking about potential upside on the rents. Also, how reliable are the current tenants and how well do you guys get along? Since you live there, getting along with them is a factor besides the rent received.
  If I were in your shoes, I would want to know how much would a remodel cost and how much more rent could I possibly get if it were remodeled? Also, the issue with rental versus sales listings is that it is often difficult to get true closed rental comps (as in you know what the rent was when it was leased and not the asking rent), because in many markets, landlords or agents don't use MLS for rentals unless a very high end property. Sometimes what is advertised and what the landlord actually rents for is not the same. Getting reliable data on rents would be helpful.
  Also, important are landlord tenant laws. For example, the landlord experience in Los Angeles CA is a different landlord experience compared to Cleveland, OH. As an investor and mortgage broker, I would want to put my money in a location where the state, county and city landlord tenant laws would not make my life difficult and my financial returns limited.
  Thinking about these items as well as where can your money yield the most for you and your goals are good to consider for what would best for you. That might mean investing locally or using your money elsewhere perhaps in an area that will make sense for the returns you want and the type of landlord experience would work best for you- whether that's being on site or an out of state investor for other properties.
  Really appreciate this response. I think this is the right way to look at it. Based on the appraisal, as-is market rent looks to be around $2,400/unit, and the current tenant is at $1,980, so I do think there is real upside. I also looked at a few nearby active listings and it seems like updated 3-bed townhouse/house product can get into the high-$2,000s, which makes me think there is a path here if the renovation is done well. That said, I agree I need to be careful not to underwrite this too aggressively. $3,000 might be possible, but I probably should not treat that as the base case until I have better proof. I think the cleanest first step is updating our side first, then getting much tighter on true rehab cost and realistic post-reno rent before making any bigger decisions on the tenant side. If you were pressure testing this, what rent would you personally need to see after renovation before you felt the extra effort was worth it?
  
  Sure, glad you find the response helpful. Regarding your question, I would want to know how many months or years it would take for me to pay off the rehab for the tenant side or break even on the cost before I started making a profit before I might consider doing the rehab to increase the rent. So let's say for very easy make believe rehab math that it cost $1,000 to do the rehab and you increased the rent a $100 monthly after the rehab. So in this situation, it would take 10 months to break even and after that it would be profit on the rehab.
  The market rents on appraisals are sometimes more accurate or less depending on the appraisal and the area (I've seen a lot of rent surveys while doing DSCR loans for properties located throughout the country). Many appraisers have trouble finding reliable rental comps depending on the area since MLS provides reliable sales comps but may not on the rental side as depending on the area most rental listings are not going on the MLS.
  I would want to really track the rental data. The issue with advertised listings is that a deal can be made with the landlord or a property management company and the tenant for lower rent and there's no data point on that.
  It depends on how much the rehab would cost and how long it would take me to recover the costs. Also, it depends on your working relationship with the current tenants. Not all tenants behave the same so having a good working relationship is important so that would impact my decision as well.
  Also, how long will I hold the property and do I plan to sell? If so, when? How would the rehab affect my possible profit? Those are some questions I would want to work on as well before making a decision.
  If you are planning on rehabbing your place for yourself then it will give you an idea as to true costs and also to be able to get an idea as to who to work with if you remodel the rental.
  [email protected]818-770-0340
  Bright Skyline518 Reviews
  Website View Page
  0 Reply
- Jason Khoury
  OP
  Member since 2022 · 22 posts · 17 votes
  5mo
  Quote from @Stacy Raskin:
  
  Quote from @Jason Khoury:
  
  Quote from @Stacy Raskin:
  
  It depends on how much more rent you would get if you were to remodel the tenant side if we are talking about potential upside on the rents. Also, how reliable are the current tenants and how well do you guys get along? Since you live there, getting along with them is a factor besides the rent received.
  If I were in your shoes, I would want to know how much would a remodel cost and how much more rent could I possibly get if it were remodeled? Also, the issue with rental versus sales listings is that it is often difficult to get true closed rental comps (as in you know what the rent was when it was leased and not the asking rent), because in many markets, landlords or agents don't use MLS for rentals unless a very high end property. Sometimes what is advertised and what the landlord actually rents for is not the same. Getting reliable data on rents would be helpful.
  Also, important are landlord tenant laws. For example, the landlord experience in Los Angeles CA is a different landlord experience compared to Cleveland, OH. As an investor and mortgage broker, I would want to put my money in a location where the state, county and city landlord tenant laws would not make my life difficult and my financial returns limited.
  Thinking about these items as well as where can your money yield the most for you and your goals are good to consider for what would best for you. That might mean investing locally or using your money elsewhere perhaps in an area that will make sense for the returns you want and the type of landlord experience would work best for you- whether that's being on site or an out of state investor for other properties.
  Really appreciate this response. I think this is the right way to look at it. Based on the appraisal, as-is market rent looks to be around $2,400/unit, and the current tenant is at $1,980, so I do think there is real upside. I also looked at a few nearby active listings and it seems like updated 3-bed townhouse/house product can get into the high-$2,000s, which makes me think there is a path here if the renovation is done well. That said, I agree I need to be careful not to underwrite this too aggressively. $3,000 might be possible, but I probably should not treat that as the base case until I have better proof. I think the cleanest first step is updating our side first, then getting much tighter on true rehab cost and realistic post-reno rent before making any bigger decisions on the tenant side. If you were pressure testing this, what rent would you personally need to see after renovation before you felt the extra effort was worth it?
  
  Sure, glad you find the response helpful. Regarding your question, I would want to know how many months or years it would take for me to pay off the rehab for the tenant side or break even on the cost before I started making a profit before I might consider doing the rehab to increase the rent. So let's say for very easy make believe rehab math that it cost $1,000 to do the rehab and you increased the rent a $100 monthly after the rehab. So in this situation, it would take 10 months to break even and after that it would be profit on the rehab.
  The market rents on appraisals are sometimes more accurate or less depending on the appraisal and the area (I've seen a lot of rent surveys while doing DSCR loans for properties located throughout the country). Many appraisers have trouble finding reliable rental comps depending on the area since MLS provides reliable sales comps but may not on the rental side as depending on the area most rental listings are not going on the MLS.
  I would want to really track the rental data. The issue with advertised listings is that a deal can be made with the landlord or a property management company and the tenant for lower rent and there's no data point on that.
  It depends on how much the rehab would cost and how long it would take me to recover the costs. Also, it depends on your working relationship with the current tenants. Not all tenants behave the same so having a good working relationship is important so that would impact my decision as well.
  Also, how long will I hold the property and do I plan to sell? If so, when? How would the rehab affect my possible profit? Those are some questions I would want to work on as well before making a decision.
  If you are planning on rehabbing your place for yourself then it will give you an idea as to true costs and also to be able to get an idea as to who to work with if you remodel the rental.
  Thank you for another thoughtful response.
  
  You’ve given me much to consider. Thank you!
  0 Reply
- Stacy RaskinBusiness Member
  Lender · Member since 2022 · 1k+ posts · 503 votes
  5mo
  Quote from @Jason Khoury:
  
  Quote from @Stacy Raskin:
  
  Quote from @Jason Khoury:
  
  Quote from @Stacy Raskin:
  
  It depends on how much more rent you would get if you were to remodel the tenant side if we are talking about potential upside on the rents. Also, how reliable are the current tenants and how well do you guys get along? Since you live there, getting along with them is a factor besides the rent received.
  If I were in your shoes, I would want to know how much would a remodel cost and how much more rent could I possibly get if it were remodeled? Also, the issue with rental versus sales listings is that it is often difficult to get true closed rental comps (as in you know what the rent was when it was leased and not the asking rent), because in many markets, landlords or agents don't use MLS for rentals unless a very high end property. Sometimes what is advertised and what the landlord actually rents for is not the same. Getting reliable data on rents would be helpful.
  Also, important are landlord tenant laws. For example, the landlord experience in Los Angeles CA is a different landlord experience compared to Cleveland, OH. As an investor and mortgage broker, I would want to put my money in a location where the state, county and city landlord tenant laws would not make my life difficult and my financial returns limited.
  Thinking about these items as well as where can your money yield the most for you and your goals are good to consider for what would best for you. That might mean investing locally or using your money elsewhere perhaps in an area that will make sense for the returns you want and the type of landlord experience would work best for you- whether that's being on site or an out of state investor for other properties.
  Really appreciate this response. I think this is the right way to look at it. Based on the appraisal, as-is market rent looks to be around $2,400/unit, and the current tenant is at $1,980, so I do think there is real upside. I also looked at a few nearby active listings and it seems like updated 3-bed townhouse/house product can get into the high-$2,000s, which makes me think there is a path here if the renovation is done well. That said, I agree I need to be careful not to underwrite this too aggressively. $3,000 might be possible, but I probably should not treat that as the base case until I have better proof. I think the cleanest first step is updating our side first, then getting much tighter on true rehab cost and realistic post-reno rent before making any bigger decisions on the tenant side. If you were pressure testing this, what rent would you personally need to see after renovation before you felt the extra effort was worth it?
  
  Sure, glad you find the response helpful. Regarding your question, I would want to know how many months or years it would take for me to pay off the rehab for the tenant side or break even on the cost before I started making a profit before I might consider doing the rehab to increase the rent. So let's say for very easy make believe rehab math that it cost $1,000 to do the rehab and you increased the rent a $100 monthly after the rehab. So in this situation, it would take 10 months to break even and after that it would be profit on the rehab.
  The market rents on appraisals are sometimes more accurate or less depending on the appraisal and the area (I've seen a lot of rent surveys while doing DSCR loans for properties located throughout the country). Many appraisers have trouble finding reliable rental comps depending on the area since MLS provides reliable sales comps but may not on the rental side as depending on the area most rental listings are not going on the MLS.
  I would want to really track the rental data. The issue with advertised listings is that a deal can be made with the landlord or a property management company and the tenant for lower rent and there's no data point on that.
  It depends on how much the rehab would cost and how long it would take me to recover the costs. Also, it depends on your working relationship with the current tenants. Not all tenants behave the same so having a good working relationship is important so that would impact my decision as well.
  Also, how long will I hold the property and do I plan to sell? If so, when? How would the rehab affect my possible profit? Those are some questions I would want to work on as well before making a decision.
  If you are planning on rehabbing your place for yourself then it will give you an idea as to true costs and also to be able to get an idea as to who to work with if you remodel the rental.
  Thank you for another thoughtful response.
  
  You’ve given me much to consider. Thank you!
  
  Sure, you're welcome!
  [email protected]818-770-0340
  Bright Skyline518 Reviews
  Website View Page
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Samuel DioufBusiness Member
Real Estate Agent · Columbus & Cleveland, OH · Member since 2023 · 1k+ posts · 1k+ votes
5mo
Quote from @Jason Khoury:

Hi everyone,

My wife and I recently bought our first property, an owner occupied duplex in northwest Washington. We purchased it for $778k and it appraised at $825k, so we do have some built in equity from the start. We live in one unit and rent the other.

The rented side is currently at $1,980/month. Based on the appraisal and what I am seeing locally, market rent seems to be closer to around $2,400 in current condition. Even with the rental income, we are still covering about 63% of the monthly PITI ourselves.

Obviously one of the main reasons we wanted to house hack was to lower our personal housing cost, increase savings, and use this property as a stepping stone into the next one. Right now I am trying to figure out whether I should view this property mainly as a stable long term asset, or more as something we should actively improve and reposition over the next 1-3 years.

The interiors are dated and mostly original early 2000s finishes, so I do think there is upside there. At the same time, I do not want to force a plan onto a property just because I want to keep moving quickly.

For those of you who have more experience, how would you think about a property like this?

Would you focus on keeping it stable, or would you look at it as something to actively improve so it can better help fund the next purchase?

Thanks in advance for any advice!

Hey Jason, sounds like you guys bought a pretty stable investment. If you can handle the negative cash-flow... I'd recommend just holding on to the property in its current state and not put too much money into it besides maybe updating the vacant side... Whenever the other tenant moves out, you could update that unit as well, and do a cash-our refi. By the time that happens, you'll probably also have even more equity in the deal just from appreciation.
[email protected]614-662-1652
Reafco - Samuel Diouf528 Reviews
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Caleb Brown
Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes
5mo
Comes down to the numbers. If you can update, bring rents to market then I think that'd work as long as comps justify it. Once you update and stabilize you can move out and potentially refi to tap into equity. I'd update your side first then figure out updating the other (maybe time with the tenants lease).
0 Reply
- Jason Khoury
  OP
  Member since 2022 · 22 posts · 17 votes
  5mo
  Quote from @Caleb Brown:
  
  Comes down to the numbers. If you can update, bring rents to market then I think that'd work as long as comps justify it. Once you update and stabilize you can move out and potentially refi to tap into equity. I'd update your side first then figure out updating the other (maybe time with the tenants lease).
  Thank you, this is pretty close to how I have been thinking about it. I do think updating our side first is the most logical place to start, then seeing whether the numbers on the other side actually justify the effort when timing makes sense.
  0 Reply
Arman AhmedPro Member
Real Estate Agent · Columbus Cleveland Dayton, OH · Member since 2024 · 2k+ posts · 924 votes
5mo
Quote from @Jason Khoury:

Hi everyone,

My wife and I recently bought our first property, an owner occupied duplex in northwest Washington. We purchased it for $778k and it appraised at $825k, so we do have some built in equity from the start. We live in one unit and rent the other.

The rented side is currently at $1,980/month. Based on the appraisal and what I am seeing locally, market rent seems to be closer to around $2,400 in current condition. Even with the rental income, we are still covering about 63% of the monthly PITI ourselves.

Obviously one of the main reasons we wanted to house hack was to lower our personal housing cost, increase savings, and use this property as a stepping stone into the next one. Right now I am trying to figure out whether I should view this property mainly as a stable long term asset, or more as something we should actively improve and reposition over the next 1-3 years.

The interiors are dated and mostly original early 2000s finishes, so I do think there is upside there. At the same time, I do not want to force a plan onto a property just because I want to keep moving quickly.

For those of you who have more experience, how would you think about a property like this?

Would you focus on keeping it stable, or would you look at it as something to actively improve so it can better help fund the next purchase?

Thanks in advance for any advice!

You’re actually in a solid position already since you’ve got built-in equity and a performing duplex right out of the gate. The big question is really whether the upside from renovations will meaningfully improve your cash flow or just create more short-term stress for marginal gain. In markets like yours, where prices are high and spreads are tighter, a lot of investors end up focusing on stabilizing the asset first, then using the equity to step into additional deals rather than over-improving one property. Some also look at expanding into more affordable Midwest markets, where the same equity can go further into additional cash-flowing units instead of trying to force higher returns in a higher-cost area.
[email protected]614-418-6081
0 Reply
Drew SygitBusiness Member
Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
5mo
Quote from @Jason Khoury:

Hi everyone,

My wife and I recently bought our first property, an owner occupied duplex in northwest Washington. We purchased it for $778k and it appraised at $825k, so we do have some built in equity from the start. We live in one unit and rent the other.

The rented side is currently at $1,980/month. Based on the appraisal and what I am seeing locally, market rent seems to be closer to around $2,400 in current condition. Even with the rental income, we are still covering about 63% of the monthly PITI ourselves.

Obviously one of the main reasons we wanted to house hack was to lower our personal housing cost, increase savings, and use this property as a stepping stone into the next one. Right now I am trying to figure out whether I should view this property mainly as a stable long term asset, or more as something we should actively improve and reposition over the next 1-3 years.

The interiors are dated and mostly original early 2000s finishes, so I do think there is upside there. At the same time, I do not want to force a plan onto a property just because I want to keep moving quickly.

For those of you who have more experience, how would you think about a property like this?

Would you focus on keeping it stable, or would you look at it as something to actively improve so it can better help fund the next purchase?

Thanks in advance for any advice!

How many competing rentals have you personally toured?
If you toured 5, rank them by rents and by condition.
How does your compare to them and where does it fall in rank?
One of the tenets of landlording is understanding, "maintaining to the neighborhood".
Over improve, and you won't get a return on your renovations - so you lose money.
Under improve and you become a slumlord with rents well under market, attracting the worst tenants that don't pay - so you lose money.
If anything, what we've seen work is 5-10% over the average (no more!) - you may not get that much more rent, if any, but your property will often rent out faster and attract the best tenants in your market.
[email protected]248-209-6824
Logical Property Management4.9458 Reviews
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1 Reply
- Jason Khoury
  OP
  Member since 2022 · 22 posts · 17 votes
  5mo
  @Drew Sygit thank you for this input Drew. Tons of nuance to my local RE market. I appreciate the perspective
  0 Reply
John Clark
Member since 2018 · 1k+ posts · 1k+ votes
5mo
First of all, you have no equity. Why? Because your transaction costs for pulling money out of the current house and buying the new property easily consume the net of any financing proceeds, which means you have to come up with the down payment and remodel costs out of pocket
How are your reserves for vacancies and repairs?

Refinance if it makes sense, but not to pull money out.

0 Reply
- Jason Khoury
  OP
  Member since 2022 · 22 posts · 17 votes
  5mo
  @John Clark Hi John, maybe my post was a little vague on timeline. I understand out equity is very thin at the moment.
  My thought is renovate the unit we occupy over the next 12 months. Then, do not renew the lease for the other unit at end of year. Offer those tenants out freshly updated side of the duplex for market rent. Then we copy the renovations in unit #2. This would allow us to stabilize the property quicker and force appreciation for the asset as a whole.
  0 Reply
Jimmy LieuBusiness Member
Real Estate Agent · Columbus, OH · Member since 2019 · 3k+ posts · 2k+ votes
5mo
Quote from @Jason Khoury:

Hi everyone,

My wife and I recently bought our first property, an owner occupied duplex in northwest Washington. We purchased it for $778k and it appraised at $825k, so we do have some built in equity from the start. We live in one unit and rent the other.

The rented side is currently at $1,980/month. Based on the appraisal and what I am seeing locally, market rent seems to be closer to around $2,400 in current condition. Even with the rental income, we are still covering about 63% of the monthly PITI ourselves.

Obviously one of the main reasons we wanted to house hack was to lower our personal housing cost, increase savings, and use this property as a stepping stone into the next one. Right now I am trying to figure out whether I should view this property mainly as a stable long term asset, or more as something we should actively improve and reposition over the next 1-3 years.

The interiors are dated and mostly original early 2000s finishes, so I do think there is upside there. At the same time, I do not want to force a plan onto a property just because I want to keep moving quickly.

For those of you who have more experience, how would you think about a property like this?

Would you focus on keeping it stable, or would you look at it as something to actively improve so it can better help fund the next purchase?

Thanks in advance for any advice!

Hey Jason, congrats on the first buy and the structure of that deal actually looks solid already with the equity and house hack setup. In situations like this, I usually think less about “either/or” and more about sequencing, meaning first make sure the property is stabilized and performing close to true market rent with minimal friction, then decide how much effort and capital it’s worth to push it further. Since you’re already seeing a gap between current rent and market rent, getting that closer should probably be step one because that alone improves cash flow without much risk. After that, I’d only lean into renovations if the numbers clearly support it and you’re confident the upgrades will meaningfully increase rent or long-term value, not just make it feel nicer. The biggest mistake I see newer investors make is over-improving too early and tying up capital that could have gone into the next acquisition. If this property already works as a stable hold and helps you qualify and build momentum, that’s valuable on its own, and then you can be more selective about whether a light reposition makes sense over the next couple years.
[email protected]614-300-7535
Jimmy Lieu, Red 1 Realty4.9120 Reviews
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- Jason Khoury
  OP
  Member since 2022 · 22 posts · 17 votes
  5mo
  @Jimmy Lieu Hi Jimmy, I appreciate your perspective. I agree that increasing to market rents is priority. Our state allows for a maximum 10% rent increase/year. So at 12 months we'd only be able to increase rent to $2178/mo.
  0 Reply
Ebonie Beaco
Lender · Chicago, IL · Member since 2025 · 204 posts · 101 votes
5mo
From a mortgage perspective, I would look at this in a simple way and focus on how this property can help position you for your next purchase. Right now, you have two strong advantages working in your favor, which are built-in equity from your purchase and the ability to increase rents closer to market, and both of those play a major role in how lenders will view your file later.

The first move I would focus on is getting the rent up to market level because that alone can improve your cash flow, strengthen your overall financial profile, and make it easier for you to qualify when you are ready to buy again. Once the property is stabilized with higher rents, it becomes a much stronger asset not just in real life but also on paper when it comes to financing.

From there, I would think in terms of a 12 to 24 month strategy where you allow the property to season, continue building equity through appreciation and loan paydown, and then look at accessing that equity through a cash out refinance or a HELOC to use as a down payment on your next deal. Rushing into a refinance too early can limit your options, so letting the deal mature first usually puts you in a better position.
1 Reply
J CastroBusiness Member
Lender · Florida · Member since 2025 · 684 posts · 246 votes
5mo
Hey @Jason Khoury, welcome to BP!
Great deal to start with—you’ve got built-in equity and a clear path to improving performance, which is exactly what lenders like to see.

From a lender’s perspective, this property is less about today’s numbers and more about where you can take it over the next 12–24 months.

1. Income vs. potential income
Right now, we’re looking at actual rent ($1,980), but we also pay close attention to market rent (~$2,400). That gap tells us there’s upside—but until it’s realized, underwriting will lean more conservative.

2. Debt coverage (DSCR) matters
Since you're covering ~63% of PITI, the property likely doesn't hit ideal DSCR yet. For future financing (especially DSCR loans), the goal is:
- Increase rental income
- Reduce your out-of-pocket contribution
- Move closer to breakeven or positive cash flow
That’s what strengthens your position for a refinance or additional leverage.

3. Value-add = future leverage
From our side, the strongest borrowers are the ones who:
- Buy below value (you did)
- Execute light-to-moderate improvements
- Stabilize rents at market
Once that’s done, you’re in a much better position to:
- Refinance
- Pull equity
- Use that capital for the next deal
4. Timeline strategy
If I were advising from a lending standpoint:
- Short term: Stabilize rents and tighten operations
- Mid term (12–24 months): Increase NOI through rent growth and light upgrades
- Then: Refinance into a more favorable structure or use DSCR to scale
Bottom line from a lender view:
This is a great asset with unrealized income potential. The more you close that rent gap and stabilize performance, the more options you’ll have to leverage it into your next acquisition.
You’re on the right track—the key now is turning that potential into documented performance. If you ever want to run numbers on a refinance, DSCR loan, or structuring your next purchase, feel free to reach out.
JCREIG Capital Funding
Website View Page
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- Jason Khoury
  OP
  Member since 2022 · 22 posts · 17 votes
  5mo
  @J Castro
  
  Appreciate that. I think that’s a good framing, especially the point about turning potential into documented performance.
  
  That’s basically the stage I feel like I’m in now. On paper, there’s clearly a rent gap, but I agree that doesn’t really mean much from a financing standpoint until I actually close it in a durable way. That’s part of why I’m trying to think carefully about timing on upgrades, tenant stability, and how much effort/capital I want to put in before making the next move.
  
  The piece I’m still wrestling with is how far to push the value-add plan on an owner-occupied duplex like this versus just operating it well, letting rents move gradually, and preserving flexibility for the next acquisition.
  
  When you look at something like this from the lending side, how much weight would you put on a clean track record of improved rents/NOI versus just the updated appraisal and stronger market rent story?
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- J CastroBusiness Member
  Lender · Florida · Member since 2025 · 684 posts · 246 votes
  5mo
  Quote from @Jason Khoury:
  
  @J Castro
  
  Appreciate that. I think that’s a good framing, especially the point about turning potential into documented performance.
  
  That’s basically the stage I feel like I’m in now. On paper, there’s clearly a rent gap, but I agree that doesn’t really mean much from a financing standpoint until I actually close it in a durable way. That’s part of why I’m trying to think carefully about timing on upgrades, tenant stability, and how much effort/capital I want to put in before making the next move.
  
  The piece I’m still wrestling with is how far to push the value-add plan on an owner-occupied duplex like this versus just operating it well, letting rents move gradually, and preserving flexibility for the next acquisition.
  
  When you look at something like this from the lending side, how much weight would you put on a clean track record of improved rents/NOI versus just the updated appraisal and stronger market rent story?
  Great question—and you’re thinking about it the right way.
  
  From a lender’s perspective, it’s pretty simple:
  
  Actual performance > projections > appraisal
  
  Collected rents and proven NOI carry the most weight
  
  Market rent supports the story, but doesn’t replace real numbers
  
  Appraisal helps with value, but not income qualification
  
  So between a higher appraisal vs. documented rents at market, most lenders will take the proven income every time.
  
  On how far to push the value-add:
  
  You don’t need to over-renovate—just get rents to a stable, defensible market level and document it.
  Focus on closing the rent gap and showing consistent collections for 6–12 months. That’s what puts you in the strongest position to refinance and scale. Best of Luck!
  JCREIG Capital Funding
  Website View Page
  1 Reply
Garrett CrosbyPro Member
Real Estate Agent · Los Angeles, United States · Member since 2021 · 392 posts · 162 votes
3mo
You're thinking about this the right way. The house hack is working — covering 63% of PITI with a below-market tenant is already a win. The question is really about sequencing and what this property's job is in your portfolio.
My suggestion would be to start with your own unit first. Update it on your timeline without worrying about tenant disruption, get a sense of what the improvements actually cost versus what they'd do for rent, and use that as a real data point. When the tenant lease ends, you'll have a much clearer picture of whether the renovation cost pencils out versus what the market will actually support post-renovation — not just what you project it will support.
Before you touch the tenant unit, I'd also just bring the rent to market at the next renewal. You're $420/month under, which is meaningful. That alone improves your debt-to-income picture when you go to qualify for the next purchase. Lenders care about documented rents, and $1,980 vs. $2,400 makes a real difference on paper.
This property's real job right now is to reduce your housing cost and build the financial position to buy the next one. Don't over-optimize it to the point where you're creating cash flow stress or a renovation headache when the bigger opportunity is using the equity and improved NOI to move to deal #2. Feel free to DM if you want to talk through the numbers.
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