Potential first property. Live in Duplex financed FHA. Thoughts?

9 Replies

Potential first investment property

Duplex: Both large 2 bed, 2 Bath, each has a garage, large yard, in single family neighborhood, separately metered, laundry in each, needs very minimal work, pretty much turnkey.

$340K - Potential purchase price

$11,900 - FHA down payment 3.5%

$2,432 - Monthly Mortgage (Includes: PMI, RE Taxes, Insurance)

$29,178 - Annual Financing

$3,500 - Monthly Rent (both units if I was not living in one)

$42,000 - Annual Rent

Operating Costs:

$3,264 - 8% Vacancy Rate

$4,080 - Management 10%

$2,040 - Maintenance 5%

$2,000 - Utilities Water and Septic

$11,384 - Total Operating Expenses

Annual Cash Flow: $1,162 (Note: Once I refinance the property in the future and get rid of the PMI of $228/month it will increase cash flow to $3,900)

Cap Rate: 8.92%

CoC first couple years with PMI: 6.51%

Budgeting for management costs but I will be managing the property myself for at least the first couple years.


hi Jose. Very great details on the deal. From my understanding, the FHA loan requires you to stay in ome of the deplex so you may have negative cashflow when you first start. Make sure that you have enough money to get rid of the fha loan then you can move out and have some good cashflow

I looked into doing the same thing. If possible in your area get a 3-4 unit. You'll get more cashflow while living there.

another option is if you only find duplexes you could rent a room in your half.

3rd thing is to rent garage separately to max income. 

@Huy Ly You are correct with FHA and having to live in one of the units. I know some people try to manipulate the system and finance with FHA and not live in it. My opinion the risk is not worth getting caught committing fraud on a federal loan.. I would plan to live in one unit for a minimum of a year.

@Brandon Barnic I agree and thanks for the recommendation. Ideally a 3 or 4 unit would be nice to get some extra cash flow but they are hard to come by in this town. This town is predominately single family homes, larger apartment complexes are beginning to be built and you do have duplexes but tri's and quads are rare! In the surrounding towns a lot of the 3-4 units on the market are not in the areas I would want to live (rougher areas) and with the FHA loan I would be living in it for at least a little while. Also, those areas do not bring in anywhere near the rent of where this duplex is located. Most 3 unit properties I have evaluated that are on the market, do not even match the rental income of this duplex due to the market rents in those areas. We are only talking 10-20 miles away.

Hi Joshua. For the duration that you are living in the other unit, I'd change your values for vacancy, management, and maintenance (I know you mentioned it at the end, but I just want to reinforce that it's more than just the management fee you save on). When you are right next door, you should only ever have a day or two of vacancy because it is so much easier to show, plus the people I've worked with are happy to have a responsible landlord living in the next unit, which means they stay longer and take better care of the property. They feel more like an owner since they know you are in the same condition and right next door. Your maintenance is reduced because you should be doing some of that yourself as well.

It's an awesome idea <horn tooting>and I just did the same with a 3-plex in February this year. It is working out amazing and I am able to force more equity by being right here for much of the work.</tooting> As @Brandon Barnic mentioned, more doors is better, but some markets just aren't that convenient!

Best of luck and it'll be great!

@Bryan O. Thanks for little boost of confidence there! You are certainly right about the management and vacancy percentages; I am only making sure I cover my bases for some years down the road when I may not be living there anymore. Figured if I budget for an almost worse case scenario and the numbers still work, then I have something good! Appreciate you commenting on this and again for the boost of confidence! 

- Josh

If you  sell after one year and make some money on it you can do it again in another duplex with another FHA 3 1/2% down payment.   Do those apartments actually rent for $1,750 each??  It must be a very nice area.  Yes why do you need a managment fee when you are right next door?  How much do  you have to put in for renovation if anything?

@Barbara G. One unit was renting for $1500 the other unit for $2000-$2100. The $2100 dollar unit is approx 1,800 sq ft. Brand new kitchen, Cherry Cabinets, granite, two full baths with granite, separate laundry room, two floors, master bed has 3 closets, living room, family room, separate dining area with direct access to a huge deck, one side of a very large garage, private yard and the town has every amenity you could want and also only a 40 min commute to downtown Boston, MA. 

Unfortunately, they took a higher offer closer to asking. Win some and you lose some..

So you lost the Duplex.  Well don't be discouraged I am sure you learned a lot and will put it to good use.  

You said "$3,500 - Monthly Rent (both units if I was not living in one)"  When you buy a Duplex and are living on one side I would certainly figure that I should factor in a rent for the side I am using. After ll you are paying rent where you are now.  Figure At least as much rent as you are paying at your current location. You should have take taken the $1,500 side for your self if you bought this duplex 

 You will be getting tax loss benefits from the side you are renting out so consider that as a plus.  If money is a problem for you then I would look for a less expensive Duplex purchase in the future.  

As someone pointed out I can not see where anyone would want a managment  Company for  a Duplex.  So the $4,080 Managment fee should be eliminated as you are right there and would know 10 X's more then any managment company as to what is going on in your duplex

"$4,080 - Management 10%" 

So take this "loss" as a Positive learning experience.  Its worth its weight in gold.  Decide what was good about it and what was a negative.  Think of it as an important educational tool.    Now you have something to measure your next Duplex against.   Figure out a way not to lose the next Duplex that you are considering.

Yes, I planned to live in the $1500 unit. The only reason I evaluated the property with management factored in was because I would end up moving out a couple years down the road. There could be a chance I would end up moving a far enough distance away that would require me to hire someone to manage the property. I knew that it would not be needed while I lived there but figured I could still factor it in as a possible future expense. 

Thanks for the input @Barbara G.

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