Is This a Deal...or Speculating?

5 Replies

Hi BP,

I'm on the hunt for a house hack in Philly, and seeking some advice for a duplex  (3/1, 1/1) on the market. I need a gut check -- in this competitive market, where can one take some liberties to buy in the path of progress, live and wait. And where is such a strategy just "pie in the sky" thinking, and too risky of an endeavor when asking price is doesn't meet the 1% rule? 

To clarify, my thinking would be to live in the 1/1 for a year or two while the neighborhood continues to improve and gradually increase rent. And while monthly cashflow is -$495, if I add that to market rent for the 1/1 ($950) then my girlfriend and I would only be paying $125 more than what we are currently paying to a landlord every month ($1,200) while building equity in a home in a neighborhood where prices are only increasing. 

Am I being TOO optimistic? Or are these compromises necessary evils in hot metro areas?

The Numbers:

Thanks,

Jesse Fields

This is a hot market and I do not know the Philly market but I wouldn't do a deal where I have negative cashflow. Dig deeper for better deals.

It looks like you’re basically paying $500 to rent it from yourselves. If you’d otherwise be paying $1200, then you’re cash flowing, in a very real way, $700/mo.

That’s $8,400/yr and it looks like you’re being sufficiently conservative in your monthly expense estimates.

$8,400/yr on a $27,500 outlay seems like a rock solid deal. If you don’t want it, I’ll take it.

Sean,

To clarify, the 3/1 should rent for 1,200 and I have included rental income from the 1/1 into my analysis. I prefer to run the numbers this way so to see understand the financials even if I am not living in it. 

Jesse

Thank you, Jessica. What would you recommend asking of the seller? The house is rent ready, and was recently rehabbed. 

Jesse

Oh. Thanks for the clarification. I was going to say: that looked like a home run!

I’d say a 3% cap rate and negative cash flow are a big ‘No Deal’ from me.

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