First deal at age 24: House-hack duplex

First deal at age 24: House-hack duplex

Investor · Houston, TX · Member since 2015 · 109 posts · 40 votes

I did it! I set a goal in January to complete my first investment deal by June. I set a few important milestones to hit along the way... read the entire Book on Rental Property Investing to build my confidence... narrowed down my options, made an offer, and then I had the keys on June 30. It's a duplex, I'm living in one side and renting out the other. It's been a lot of work but I am liking it so far! It hasn't burnt down yet and I'm about to receive my second rent check which is just over 2x the P&I on the whole place... for me, that's a success.

Upsides to the deal: Healthy cash return (~15%) based on BP calculator and conservative assumptions, and the actual numbers are delivering well so far. Already cash-flowing - came with a great tenant on the other side. Newer property (2008) with simple construction - should be easier to maintain for a newbie like me. Positive location factors: good side of town, walking distance to healthy and attractive downtown area and employers; at end of a cul-de-sac (no thru traffic), bordered on one side by a wide-open grass lot with large tree, good views from the front porches. Low unemployment in the area and lower than average vacancy rates.

Downsides to the deal: Although it's new, the duplex itself is otherwise not very attractive - looks like a manufactured home, not very high-quality construction. Local middle-class job market is heavily dependent on a few companies.  Negative location factors: despite upside, the neighborhood is still just a C / C+ at best, dragged down by a couple of "D" houses, one of which is right next door (although the owners are just fine). 

I pulled the trigger because in my view the benefits outweighed the negatives and it fit what I needed in terms of house hacking, simplicity, and cash return. I am sure it will cause its share of headaches in the coming years, but I feel it's a good starter property and I will learn important lessons while making good money. I may need to move for work in the near future, but I know that I can still hang onto this property and make money because I built 10% property management into the calculation. I am concerned about how to get a good tenant when the other side moves out... but that's what BP community is for.

Thanks all for reading! Welcome any questions or comments.

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Rental Property Investor · WY · Member since 2016 · 243 posts · 221 votes
10y

Hey @Nicholas Sparks

IF you want to get into a duplex and cant afford/dont want to put down 20% and you'll be living in it, you can get an FHA Loan (or possibly a rural development loan) and put 3.5% down.

I did it on a 4 plex. 

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  • Investor · Birmingham, AL · Member since 2015 · 254 posts · 136 votes
    10y
    Originally posted by @Jeff F.:

    Hey @Nicholas Sparks

    IF you want to get into a duplex and cant afford/dont want to put down 20% and you'll be living in it, you can get an FHA Loan (or possibly a rural development loan) and put 3.5% down.

    I did it on a 4 plex. 

     Also, If this property needs work.. Look into 203(k) loans.

    Utilized properly, k loans are a powerful tool!

    Good luck!

  • Real Estate Professional · Moffat, Scotland · Member since 2016 · 12 posts · 3 votes
    10y
  • New Haven, CT · Member since 2016 · 90 posts · 99 votes
    10y

    Surprised your loan officer didn't even mention 3.5% down for an FHA loan. I would never put down 20% if I didn't have to. Under contract on a $240,000 home right now. $8,400 out of pocket, closing is being paid for by the seller, UFMI is added into the loan of roughly $4,000. 30 year, locked at 3.625% interest. Will refinance after 6 months even though it would cashflow as is.

    A rated neighborhood. 

  • Wholesaler · New Orleans, LA · Member since 2016 · 77 posts · 13 votes
    10y

    How long must you stay in a residence under an FHA loan?

  • Investor · Houston, TX · Member since 2015 · 109 posts · 40 votes
    10y

    Maybe the bank makes more money on a standard loan?

    Your deal sounds great. Sounds like you will be doing a reno to cash out?

  • John CasmonPro Member
    Cincinnati, OH · Member since 2013 · 1k+ posts · 1k+ votes
    10y

    @Tim Johnson Congrats on your first deal. The first one is the hardest one so kudos to getting it done and in the time frame you set for your goals!

    Agree with @Matthew A. about the FHA financing. This would have allowed you to put just 3.5% down and use the other 17.5% as a leg up on your second purchase. Would strongly advise anyone looking at an owner occupied 2-4 unit to consider an FHA loan. There are some limitations, but it provides so much financial flexibility.

  • Charlotte, NC · Member since 2016 · 56 posts · 19 votes
    10y

    @Johnquel jones FHA loan is a great option for you as well as 203k loan, lease option or seller financing. Do some research and keep an open mind. If you see a property that you like, don't be shy about asking the owner about a lease option, although the owner should be free and clear of a mortgage of the owner is willing to do seller financing. How you read The Book on Investing in Real Estate with no (and low) Money Down by Brandon Turner? If not, you should it's a great read and will definitely show you how to acquire properties with no money down.

  • Investor · Chicago, IL · Member since 2013 · 9 posts · 9 votes
    10y

    Congrats @Tim Johnson. You took action and got the ball rolling which is always good. My husband and I also bought a 2 unit when we started and slowly made updates to the units over couple years. I know many asked about financing, for us we did an FHA loan. With credits and low down payment, we ended up paying less than $2k at closing. We used the money we saved up to do the improvements I referenced above. These change along with rent increase helped us significantly increase the value of the property. We then refinanced and got rid of the PMI since we had gained enough equity.

    This experience also allowed us to build our experience in being landlords. We had also asked for one of the units to be vacant when we purchased it.

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