Duplex analysis - owner occupied

4 Replies

Hi all! Happy Sunday!

I am in the process of analyzing and already visiting multi families with my real estate agent (who happens to be a very good friend I've known for a while) so that I can buy my first property, which I want to house hack. Anyway, I am a little confused on the following:

When analyzing a property using the rental property calculator, I understand if the numbers make or don't make sense when I analyze it as if I was going to rent both sides of it. But when I analyze it as if I was going to rent only one side and living on the other side, well, obviously the numbers don't look as good. So my question is: is it a good deal if I get at least big part of the mortgage and PMI, or hopefully that amount in full (my husband and I are buying it with FHA which we are already approved for) from the rent that the tenant will be paying? Meaning, we will be paying from our pockets the home insurance, all the utilities, saving for cap ex, maintenance, etc and we won't be cash flowing, but at least we will be getting the mortgage and PMI from the tenant (or at least a big chunk of it). Is that a good deal? What should I be looking at when analyzing, numbers wise, an owner occupant multi family in order to make sure I am buying a good deal? Makes sense?

Sorry for the long post. This is our first property and we really want to do it right. Of course a little nervous, but super excited... and trying to learn!

Thank you all! Look forward to hearing your comments, teaching lessons and suggestions!


@Karla Evans - You should analyze it as if you are going to rent both sides out. Hopefully this is going to be a long term investment for you. You are thinking about it the right way - obviously it won't look as good when you take half the rent away, but you are kind of making that money, too, because you're no longer paying rent. 

You also probably will only live there for a few years, but you'll hold it longer. If you hold it for 20, but live in it for 2, then 90% of the life of the investment is with both sides rented out, so you should analyze it with that assumption.

I would analyze the deal the same as if you were going to rent out both sides, but figure how much you would have to pay in rent for your side. For example if you will live in a side that is a 2 bed 1 bath and you would have to pay $850 a month in rent to someone else, assume that as your income for your side. Then if the other side is also a 2 bed 1 bath that you rent for $850, your total would be $1700. Then if you do an all bills paid situation you need to account for that, although some duplexes pay their own bills separate. I assume you currently have to pay rent somewhere else or a mortgage, so here you will be your own tenant. The plus side is you know you will pay 12 months out of the year and not cause a huge amount of damage. You also don't have to report your own rent factor as income rob the IRS, but if you rented out you're side and cash flowed you would pay income tax, and still have to pay rent somewhere else that isn't tax deductible. Remember actual tenants might not pay12 months out of the year since you might have vacancy when the year move in/out and also you've could rent to people who lose jobs etc.

Disclaimer: I am not an accountant or lawyer, so none of my comments about tax consequences etc should be taken without consulting a qualified professional!

Thank you @Kevin Siedlecki that makes me feel more confident. Yes, it is a long term investment so it totally makes sense what you said. I am trying find a property that represents a good deal, specially because this is my first investment, so will def be analyzing them that way. Thank you again!

Thank you @Sam Epstein ! I forgot about the taxes if I have an owner occupied property vs just tenants. I have a CPA and been asking all these questions, so thanks for reminding me of that when analyzing. Definitely will keep analyzing as if I was going to rent both sides... but feels good to think that I will be paying towards my mortgage rather than wasting money in rent! Thanks again! 

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