First Timer Home Buyer - Looking at a duplex

17 Replies

Hello all -

I am a first time home buyer with no experience in RE other than knowledge acquired from my lurking on BP. I decided that my first step should be to find a duplex or small MFH to "house hack", as I am currently renting. 

I have looked at many houses in the Philadelphia area but many of the places I have gone to were no areas in which I am comfortable living in. Finally I have located a property that I would feel very comfortable living in but of course it comes with a premium. I am thinking that it's ok to get this property but again, I am really nervous about this. 

Here is the property details:

Duplex - 2bed/1bath each

Each apartment can rent for ~$1100 as it stands

Real Estate taxes: $3100 per year 

Owner pays water and sewer - which averages to about $100 per month

Price of the Property is $272K.

In a B/B+ area, stable renters and vacancy rate should not be too much of an issue.

Currently I pay $800 in rent in a different area. If i go through with this i would occupy one unit but eventually will move elsewhere and the plan is to rent them both out.

Can you please let me know what you think? Am I close to making a financially stupid mistake?

Thank you!

@Yvette Chung Welcome to real estate investing! That is a great decision to house hack as the first step. While those numbers aren't anything to brag about for an investor, it's a place you are going to occupy and you need to be comfortable with the area. Having a duplex is great experience owning a property and being a landlord - and that's the experience you need to get under your belt you can't get by standing on the sidelines.

I don't know your area and if this is an outstanding deal, but I am rooting for you to go for it and get your first step in the door of real estate investing. Hopefully your personal finances are in order, and you have enough reserves for other things that might come up in home ownership. Did you run the numbers on the Bigger Pockets calculator?

Thanks @Julie Marquez I have punched in the numbers on the BP calculator and it seems to be telling me that cap rate is ~5% and 0.8 in the 2% rule. But all these numbers do not mean too much to me, I don't think i am getting a great "deal". But the price is in line with what things have sold for recently in the area. I am afraid of all the What if's. But you brought up a great point, it is that i will be able to learn to be a landlord through this property. That experience cannot be read from a book or any websites.

I agree with both of your input. I am in the same boat as Yvette in the Houston area. New investor looking for a multifamily to occupy as my first purchase. If I were presented with a duplex of that sale price, and also in an area I would consider living even for a short time, I would go for it. Even if mistakes are made along the way, it's a great learning experience. The most important thing to remember is to have a back up plan in the event that something turns sour. Congrats, Yvette! Happy investing :))

@Yvette Chung Hi - I have two properties in Philly now, two different areas, and looking in another. I have some ideas about your situation (based on what I'm doing and have done) and would like to learn a little more... PM me if you wish. 


Thanks @Courtney Hebert ! Good luck finding your first purchase too! :)


@John Fleming - Certainly! Would love to hear from someone local who can shed some light on this! PMing you shortly.

@Yvette Chung If you're purchasing it as an investment, just run the numbers.  Let's forget the time period that you're living there, because the income will be skewed down.  But if you move out and lose money on the property, or barely make money, you would essentially have to sell - because it's an investment.  If that's the case, you should feel good about buying only if you feel good about needing to sell when you want to move.

But if the numbers work, assuming two paying tenants, and you'd be earning whatever return you are aiming for, then it makes sense.  A lot of people purchase their first property without the forethought of calculating it as if it's an investment (myself included :( ).  You're putting yourself in a great position because you're already thinking like that.  If it's not this one, it'll be some other.

Also, as an investor, asking price really should be almost inconsequential.  Every house has a "right price" for you as an investor, which will provide you the return you seek for the risk you take.  If $272k is too high for your investment return requirement, figure out what is right for you and offer that (or maybe a little lower, depending on your negotiating technique).

Good luck!

@Simcha Davidman - Thanks for your reply! Can you elaborate on "Let's forget the time period that you're living there, because the income will be skewed down."? I am a newbie (obviously) and am not sure i understand what you mean. 

I have been running the numbers across different calculators and/or spreadsheets, it seems like there would be cash flow, just not a ton, at least not for a while. But the property is in a safe quiet neighborhood that i'd be ok with living in and also seems to have a steady stream of renters. I just don't know what i may be missing.

@Yvette Chung welcome to BP. I don't know what your interest rate are but I don't think buying this multi is a good idea.  After doing the math you would be losing out big time, even if you decided to rent both units.   As an investors you need to do the long term math and also keep an open mind to areas that don't suit your personal criteria.  You need to remember the 2% rules and making money comes first before anything else.

@Yvette Chung If you're living there, you will not be able to rent that unit out. So you're looking at $1,100/month of income. Assuming you put down 25% at 4% interest, your debt service will be almost $1,000/month, not including taxes, insurance, utilities, maintenance, repairs, capex budgeting and vacancies. You'd be losing money, as an investment. But you'd also be paying relatively less for your home than if you were to buy a SFR for yourself with no income to offset your expenses.

If, or should I say when, you rent out your unit also, you'd be grossing $2,200/month, and there'd be what to talk about (is $1,200 a month enough to cover all those items listed above aside from debt service?).  It still might not a good enough investment for you - that will depend on what your requirements are.  You might be ok taking on the risk of owning an illiquid asset with a huge debt burden for only 5% return, or you might require 10% return for yourself.  If you require 10% and this only returns 6%, walk away because you're making an investment decision.

But again, it seems to be only relevant once you would rent out both units.  Your income from one unit alone will not support any sort of immediate investment thesis.

I hope that might be a little clearer.  If not, please let me know and/or message me.

@Loubert Antoine hey Loubert - thanks for the reply. Why do you say I'd be losing money big time? I didn't think I'd lose money - and certainly not big time? But maybe I'm missing something?

Hi Yvette,

Are you working with a Realtor? They should be able to guide you through all of this. I'd be happy to help or make any recommendations if you needed.



After negotiating a lower price to get more towards the 1 percent rule, I would only buy the duplex if I didn't have plans to move anywhere else for a long time.  That way it would be difficult for it to turn into a bad deal.  Since you need somewhere to live anyway it's not a bad idea to have somebody else pay most of your mortgage.  If I could start over again and if the bank would have loaned me that much money, I would have started with a duplex myself or would have tried to buy a small apartment complex.  I would make sure the apartments would pay for the debt service, expenses, and my rent to live somewhere else.

This is a great post. Any advice for a someone purchasing a duplex with only one recent comp within the last 12 months? How do I determine the value of the property? 

@Shaquetta Chittams You'll have to run the calculator like a commercial property. How much rent does it bring in and what are the expenses? With those numbers, that will tell you what you can afford to pay and still make money as an investment.

@Julie Marquez So it's not us...we're fine everything is good to go, but the underwriter won't accept the comps the appraiser found and we just learned the seller used single family homes to determine the price. 

What did you decide here?  

I have a similar dilemma:  Trying not to overpay for a duplex where I might live in one of the units.  Realtor says I should be able to get  1100 and 1500 from the 1BR and 2BR.

The area is appreciating, but purchase price is 310,000 and contractor estimates between 30-50k to get it in the shape that will draw those units rents. Just perusing the web and past MLS listings, these rents seem a little high for the area, but not unreasonable. The area does have a lot of new construction and growth.

This violates 1 % rule, but cap rate is still above 5%.  

I have no idea what GRM and cap rates should be in this area.

Is this just analysis paralysis?!?

@Yvette Chung @Shaquetta Chittams Ok I didn't read every post on here so disregard if this has been mentioned. First off most property's won't cash flow 50% of the rent. Especially off the MLS. What you are doing is kicking the can down the road when you live in 1 side of a duplex. Yes the other side will most likely cover the mortgage pmt. Yvette has not give all the numbers here so I'm just guessing. The mortgage,taxes, insurance, repairs for both sides, and all of the cap ex and so forth will not normally be covered by one half the total rent. This is especially true if you are using a very low down payment. Soooo things like cap ex part of the insurance 1/2 the taxes etc will still come out of your pocket. Cap ex, vacancy, and property management can be put off and so you kick the can down the road to be addressed at a later date. When you buy the property it's crucial that you do your due diligence based on both sides being rented. Forget that you will be living there. The property needs to be profitable if you choose to pay yourself rent. If it's not you will eventually be forced to sell or at best live there and pick up the short fall in expenses. Shaquetta I'm glad to see you still hanging in there. RR

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