Hi everyone! I recently made my first post on BP forums to introduce myself and have been working with a real estate agent I met through BP to look for my first deal. The deal i'm currently looking for is to purchase a multi-family through an FHA loan and rent out all the units but one, which I would live in.
It appears that where I'm located and the market I'm searching in does not have great multi-family deals or great properties. We found one that has just been completely renovated (absolutely everything) and is extremely nice. However, I feel the price is too high for the area it's in and it's surrounding properties. The property is a duplex with 2BR/2B units (one upstairs, one downstairs) and the top unit is renting at $1,500. I would be moving in with a roommate in the bottom unit and would be charging my roommate about $800. I have attached a picture of the analysis my REA ran for me for further details on the purchase price, downpayment, expenses, etc..... I keep going over it but for some reason it seems like it's not a good deal to go into, but since this is my first time and am fairly new to this, I am not sure and wanted to ask people on the forum's what they thought.
I thank anyone in advance who could take the time to provide me with their opinion, suggestions, feedback.
Hi @Juan Carlos Valdes,
What are the market vacancy rates in your area? It looks like your REA used 5%. Is that accurate? Also, where is the electricity amount coming from? Are you paying the electricity bill for the whole property? $15 seems low, but I don't know the rates in your area. Might be worth checking.
The most important thing you can do is to be comfortable with your transaction. It is understandable to want to be reassured, but in your post you state that you don't think it is a good deal. If that's the case, move on and find a deal that you believe in. If you love the property, but the asking price is too high, make a lower offer. Don't just commit to a deal because the REA says it is a good deal.
Good luck! Let us know how it plays out!
Hi @Joe Kling
Thanks for your response!
You are correct in that we used a 5% vacancy rate because the top unit has just been rented for a full-year lease and I will be living in the bottom unit with a roommate. As for the electricity, the units are separately metered so the upstairs tenant will pay for his own and I will be splitting the bottom unit's bill with my roommate. The $15 we put was a conservative random bill that my REA said could come up say for like some lights outside the house that may not be included in a the meters, but we are actually thinking that this expense will not exist.
I think what I'm looking for is some guidance on what these numbers mean and how they will benefit/hurt me if I go with the purchase. Would this deal be something you move forward with? It seems as though with the "pessimistic" analysis we made (the 240 property management expense will not exist as I will be managing it since I live there, until several years down the road that I move out I may or may not use a property manager), I would be paying around $700 of rent myself. I am currently paying $1,100 so I would be saving around $400 a month. This, in a way, sounds good to me but then again I thought the idea of house-hacking was to live completely free so I don't know if this is actually good then. Does this investment seem worthwhile for the money I will be putting down?
I haven't bought property yet, and am completely new as well. But I think that you should run the numbers as if you weren't living there. If the numbers don't add up, and you have a negative cash flow then it looks like a bad deal.
I believe that you should look at it this way because when you move out your are probably going to want the property as a buy and hold. But if it doesn't cash flow you could be on the hook for more than you can chew and only relying on appreciation. Just my thoughts, but again please prioritize feedback from the more experienced investors on the site.
Sorry forgot to add that it might depend on your goals. I'm looking for a multi myself. I will probably be purchasing something that doesn't cash flow well or at all because I want to live somewhere nice and plan to make it my home for a few years. So to me that trade off is worth it and I'll look at other deals from a hard investment stance. I think it is a little tough to look at your home with pure numbers blinders on. But there are better deals to be had numbers wise.
Hey @Andrew Lacy thanks for your input! The picture of the analysis that I attached is running the numbers as if I didn't live there for that same reason you mentioned.
That's why it is showing as $3,000 in income: the top unit is already rented at $1,500 and both units are exactly the same and just completely renovated so we used the same number for the bottom unit's rent. (And I guess that will also be the current reality as I will be receiving those top $1,500, $800 from my roommate in my bottom unit, and my $700 that I'd have to put.)
However, the number shows that the income is equal to the expenses, actually monthly clashflow is at a negative $1.
I am planning to live there for a couple years and it is a very nice place since it is just brand new renovated. I am just wanting to gather people's thoughts on the long-term view as an investment.
Let me know your thoughts.
@Juan Carlos Valdes
Yeah I really just think it depends on your goals. Like I said in my previous post, I'd definitely live there. I'd feel comfortable if it cash flowed a little bit, but in my situation--which might be similar to yours--I want a nice multi in a certain area. And I don't mind taking an objectively bad deal because it is still better that paying rent. You're building equity and still have those great tax advantages.
You should develop an exit strategy tho. What do you want to do after a few years? Do you want to sell. If so you should run those numbers. You might end up not actually making any money on this investment. Closing costs/agent costs should be calculated. Plus if it doesn't appreciate then you may as well have just payed rent.
Can you afford to hold for a few years after the equity builds? And will refinancing out of FHA bring you to a positive cash flow? These are just some considerations I would keep in mind.
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